Hot stock: SGX shares rise 5.3% amid heavy trading on married deals

SHARES of Singapore Exchange (SGX) S 68 rallied on Monday (Feb 7)  amid heavy trading as 12 married deals took place over the course of the day.

The counter gained as much as S$0.50 or 5.3 per cent to S$9.90 - its highest price since October 2021 - before ending the day at S$9.86, up S$0.46 or 4.9 per cent. Some 12.84 million shares worth S$126.34 million changed hands.

Twelve married deals were recorded throughout the day, according to ShareInvestor data.

The heavy trading of SGX shares comes after the company posted an 8.8 per cent decline in net profit in its financial statement for H1 FY2022 on Friday. Following the release of the financial statement, Maybank Securities upgraded its call on SGX to "buy" from "hold" but lowered its target price to S$11.20 from S$12.27.

In a research report on Monday, analyst Thilan Wickramasinghe said the upgrade comes as he expects an inflection in the bourse's performance given Singapore's "increased relevance as a value-oriented investment destination". Wickramasinghe said the lower target price is due to weaker-than-expected treasury earnings for H1 FY2022 as well as lower peer multiples. It is attributed to a 3-13 per cent reduction in estimated profit after tax for FY2022 to FY2024 to account for weaker treasury income and lower equity clearing fees, the analyst added.

He nonetheless sees potential for Chinese and South-east Asian homecoming listings to choose SGX as a neutral listing venue. A stronger-than-expected reception for local SPAC (Special Purpose Acquisition Company) listings could also support market velocity and fees going forward, Wickramasinghe said.

"SGX has underperformed so far this year. However, its value-orientation, risk management offering and potential to increase regional relevance as Covid reopening progresses could support an inflection," the analyst commented.

Despite the drop in treasury income over H1 FY2022, Wickramasinghe noted higher volumes in other segments such as fixed income, foreign exchange derivatives, commodity derivatives and equity derivatives. "Increased uncertainty from monetary tightening, the execution of China's common prosperity policy and rising inflation are likely to increase demand for SGX's derivative suite of products to manage risk," he said. Wickramasinghe also believes that regional reopening could lead to greater demand to raise capital and reduce exposure to freight and commodity price risks.

Meanwhile, RHB and CGS-CIMB have both maintained their calls and target prices on the stock in their separate research notes on Monday. CGS-CIMB said it expects fixed income, currency and commodities (FICC) earnings from SGX's acquired businesses to increase as they gain scale. The recent acquisition of MaxxTrader could result in a 20-25 per cent rise in average daily volumes of foreign exchange earnings. CGS-CIMB reiterated its "add" call on SGX with a target price of S$10.40.

The research house projects that China A50 index futures will be supported by SGX's "deep liquidity" and its "large addressable market" but remains cautious of competition from Hong Kong Exchange's product as it gains traction.

Likewise, RHB sees the risk of increased competition from Hong Kong Exchange's MSCI China A50 Connect index futures despite SGX's confidence in the expansion potential for its FTSE China A50 index futures. RHB said it remains positive on the longer-term outlook for SGX, but believes that the bourse's share price and earnings lack re-rating catalysts in the short term. Besides competition from the Hong Kong Exchange, RHB highlighted concerns over management guidance for higher operating costs which include expenses related to the acquisition of MaxxTrader. Revenue from such recently-acquired businesses could take time to scale up, said the research house.

Securities market turnover could also face moderation as trading volume from SGX-listed stocks may move to Sea upon its full induction into MSCI Singapore in Q1 of 2022, it added. Nevertheless, RHB continues to like SGX as it is trading at a reasonable valuation, in its view. The research house has maintained its "neutral" call on SGX with a target price of S$9.80.