Brokers' take: RHB raises SGX TP on expected boost to earnings from higher treasury income

RHB has raised its target price on the Singapore Exchange (SGX) to S$10 from S$9.80, after it raised its forecasts for SGX's FY2022 to FY2024 earnings by 2 per cent.

Earnings of the bourse operator could see a boost from higher treasury income amid interest rate hikes by the US Federal Reserve, said analyst Shekhar Jaiswal in a report on Tuesday (Mar 29).

The analyst is also positive on SGX's long-term growth prospects from its latest acquisitions and potential pipeline of new listings.

However, he reiterated his "neutral" call on the counter, as he noted that SGX lacks near-term re-rating catalysts, and has a modest near-term earnings growth, a price-to-earnings ratio that is above historical average, and an unexciting dividend yield support.

Shares of SGX were trading at S$9.81 at 2.39pm on Tuesday, up S$0.02 or 0.2 per cent.

Jaiswal noted that SGX has seen increased trading activity in February amid elevated geopolitical tensions and uncertainty around the global economic outlook. He thus expects market volatility to have a positive effect in the near-term and boost SGX's FY2022 earnings.

The analyst noted, however, that SGX has an elevated operating cost profile in FY2022, while its revenue contribution from recent acquisitions could also take time to scale up.

SGX could also see elevated competition from the Hong Kong Exchange's MSCI China A50 Connect Index Futures against its own FTSE China A50 Index Futures, while the induction of US-listed Sea into the MSCI Singapore index may also move some trading volume away from SGX-listed stocks.

Jaiswal said SGX's valuations are reasonable given its modest earnings growth as its estimated FY2022 price-to-earnings ratio is currently above its historical average, and it offers a modest yield of 3.3 per cent.

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