Brokers' take: RHB keeps 'buy' call on SGX amid optimism about securities liquidity

RHB Research maintained its "buy" call on Singapore Exchange (SGX) after the market operator's second-quarter results, citing optimism about the core securities business.

RHB analyst Leng Seng Choon kept his target price of S$9.00, which represents 24 times forecast earnings per share for the year ending June 2019. SGX shares closed at S$7.98 on Friday.

On Jan 19, SGX reported a modest year-on-year net profit increase of 0.1 per cent, to S$88.4 million, for the three months ended Dec 31, 2017.

The average daily turnover for the securities market rose 5 per cent year-on-year to S$1.14 billion. Even if securities average daily traded value (SADV) value was 20 per cent lower, at S$1.11 billion, SGX's fair value would be about S$7.84, Mr Leng wrote.

"We also assume FY18 SADV of S$1.20 billion, and a stronger FY19 SADV of S$1.39 billion, on the back of bullish investment sentiment from stronger economic growth," he said.

The star segment of the latest results came from derivatives, where segment revenue grew 11 per cent year-on-year and contributed 41 per cent of total revenue, Mr Leng said.

From a products perspective, the analyst also gave a thumbs up to SGX's plan to launch Indian single-stock futures and to allow dual-class share structures on the equity market.

"The company also offers an attractive FY18 forecast dividend yield of 3.9 per cent, which is higher than the Singapore sovereign 10-year bond yield of 2.07 per cent," Mr Leng wrote.