Brokers’ take: UOBKH upgrades SGX to ‘buy’, expects robust H2 results

STRONG financials implied by the Singapore Exchange ’s (SGX) annual market statistics has led UOB Kay Hian (UOBKH) to believe there is upside to the stock at its current price levels, prompting the research house to upgrade its call on the Singapore bourse to a “buy” from “hold”.

The research house also raised its target price to S$11.09 from S$9.55 previously to reflect higher earnings projections in the near- to medium-term.

“SGX is set to post strong H2 FY2022 results as, excluding the cash equities segment, we project solid growth from other segments based on sturdy FY2022 volumes,” said analyst Llelleythan Tan in a report on Wednesday (Jul 20).

“Robust contributions from FICC (fixed income, currencies and commodities) and equity derivatives are set to continue in FY2023 due to volatile macroeconomic conditions, whilst higher treasury income from interest rate hikes is expected to start from H2 FY2023.”

Overall, UOBKH has lifted its FY2022-2024 earnings estimates by 3-4 per cent to S$449.7 million for FY2022, S$504.7 million for FY2023, and S$553.2 million for FY2024.

FY2022 revenue and net profit are forecasted to grow year-on-year by 5.2 per cent and 8.6 per cent, respectively, and by 1 per cent and 12.2 per cent in the subsequent fiscal year.

Based on latest SGX market statistics, Tan is expecting revenue from cash equities in FY2022 to decline on-year despite a slight improvement in H2 compared to the previous half. He cautioned that while higher interest rates could boost treasury income significantly, this may depress securities trading volumes and impact the cash equities segment.

FICC will instead be a “star performer” in terms of driving revenue for SGX, in Tan’s view - while higher average fee per contract and higher trading volumes are expected to support growth in equity derivatives revenue going forward.

“As the China A50 futures market grows, we reckon that SGX would be able to maintain its market share due to its strong liquidity on its exchange and multi-asset offerings,” said the analyst.

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“With a moderate yield of about 3 per cent, we like SGX for its resilient business model that benefits from global economic uncertainty,” she concluded.

As at 9.34 am on Wednesday, shares of SGX were trading S$0.04 or 0.4 per cent higher at S$9.84.