Broker's take: RHB upgrades SGX to 'buy' on robust trading volumes, further rises expected

RHB on Wednesday upgraded its rating on the Singapore Exchange (SGX) to "buy" from "neutral", and raised its target price to S$9.20 from S$8.60 on the bourse operator's strong securities average daily value (SADV) in recent weeks, as well as expected trading increases.

Shares of SGX were trading at S$8.05 as at 11.07am on Thursday, down S$0.05 or 0.6 per cent.

Analyst Leng Seng Choon raised the target price on a 24 times earnings per share expectation for SGX's 2021 financial year ending June 30, supported by an estimated 4 per cent yield.

He raised his forecast for SGX's FY21 net profit by 6 per cent to S$415 million, after revising the FY21 SADV up 15 per cent to S$1.32 billion.

The new SADV figure is based on a "robust" S$1.57 billion SADV for Q4FY20 (based on data until the third week of June), and on the gradual resumption of economic activities, Mr Leng said.

He added: "We believe the economic recovery from Covid-19 could give rise to more volatility in the equities market and hence increase trading."

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However, he warned that if the pandemic were to be prolonged, trading volumes could gradually decline from current highs.

Mr Leng forecast a FY20 dividend of 36 Singapore cents per share for SGX based on an 85 per cent payout ratio, translating to a "respectable" 4.5 per cent dividend yield.

He predicted a lower dividend of 33 cents per share for FY21.

FY21 net profit is expected to be lower year on year compared to FY20, due to a fall in derivatives trading. SGX last month announced the shedding of the bulk of its MSCI contracts next February. These contracts account for 12 per cent of the bourse operator's total derivatives average daily contracts.