‘Defensive play benefiting from volatility’: Analysts positive on SGX earnings, raise target prices

[SINGAPORE] Analysts are positive on Singapore Exchange (SGX), amid the recent months’ rise in trading volumes and volatility.

SGX can be considered a “defensive play benefiting from volatility”, said CGS International analyst Tay Wee Kuang.

“Given the variety of measures by the government to spur trading volumes alongside volatility amid global macroeconomic uncertainty, we think the current guided revenue growth per annum over FY2025 to FY2027 forward is possible,” he wrote in his Tuesday (Jul 8) note.

He has upgraded his rating on the counter to “add” from “hold”, and raised its target price to S$18.30 from S$13.20. Over the past year, SGX shares have jumped 60 per cent from just under S$6.

SGX data indicates that derivatives traded volume rose 17 per cent year on year in the past month to 26.1 million contracts, as its daily average volume (DAV) gained 9 per cent year on year to 1.3 million contracts. As for FY2025 (July 2024 to June 2025), total volume climbed 17 per cent to 315.8 million contracts.

Its securities market turnover increased 23 per cent year on year for the month to S$26 billion, while securities daily average value (SDAV) rose 12 per cent year on year to S$1.2 billion. For FY2025, the aforementioned turnover gained 28 per cent to S$336.4 billion, with SDAV up 27 per cent at S$1.3 billion.

At the group’s H1 FY2025 results briefing in February, it had provided the market its medium-term guidance for its financial performance, and guided for 6 to 8 per cent growth per annum for revenue, excluding treasury income.

Tay expects the strong volume growth to be a “good proxy” for SGX’s over-the-counter foreign exchange product sales in the second half of FY2025, and estimates net revenue to rise 6 per cent year on year, offsetting seasonally higher operational expenditure.

Citibank analyst Tan Yong Hong, also noting the higher trading volumes created by elevated volatility, said he expects “robust” FY2025 earnings for SGX.

He raised the price target for the stock to S$13.10 from S$11.90. However, Citi reiterated its “sell” rating, saying that market optimism in the review measures is likely to be faced with initial disappointment.

The Monetary Authority of Singapore (MAS) announced in February the S$5 billion Equity Market Development Programme to spur the local equities market, and adjustments to the Global Investor Programme.

However, Tan stressed that investors are well positioned to gain from the stock.

“We have a valuation at around 25 times its P/E ratio, as compared to the historical 19-to-25 time range, due to MAS review measures in August this year and the bourse’s rotation out of Singapore banks,” he wrote.

SGX is drawing a few new listings this year, such as that of cloud-based software provider Info-Tech Systems, which closed its first trading day on Jul 4 at S$0.91, around 4.6 per cent above its initial public offering (IPO) price. Automotive group Vin’s Holdings made its SGX debut on Apr 15, becoming the first IPO on the bourse in 2025.

NTT DC real estate investment trust (Reit) launched its IPO on Jul 7 – the largest in the S-Reit space in ove a decade. It is expected to begin trading at 2 pm on Jul 14. Hong Kong-listed China Medical System is seeking a secondary listing on SGX’s mainboard, having slated its listing ceremony for Jul 15.

Tay from CGS International warned, however, that interest rate cuts would crimp treasury income, which could be a drag on group revenue for SGX. Tay is also forecasting a year-on-year revenue growth of 4.7 per cent for FY2026, and 5.6 per cent for FY2027.

Dividend levels could improve: RHB

That said, RHB Group Research analyst Shekhar Jaiswal, who lowered SGX’s target price to S$15.90 from S$16, said that the stock’s year-to-date gains are likely to have been already priced in, despite the government initiatives announced in February and overall optimism in the market.

Jaiswal has kept his “neutral” call on SGX in his Thursday report, with his earnings forecasts unchanged, though he does raise his dividend expectations on the counter.

“The payout ratio (of SGX) was above 85 per cent in FY2015 to FY2019, above 75 per cent in FY2021 to FY2022, but fell to 69 per cent in FY2020 during the Covid-19 period; it has remained around 61 per cent since,” he said.

For FY2025, the RHB analyst expects the payout ratio to stay flat. “However, with rising cash balances, solid earnings and no major mergers and acquisitions announced, we see room for improvement,” he said.

He forecasts the payout ratio to rise gradually to 75 per cent by FY2027. “But even so, the FY2027 yield would be just 3.4 per cent, still below the market average,” he noted.

Citibank’s Tan estimates the total potential shareholder return to be under 4 per cent of market value. “We expect new quarterly dividends per share of S$0.09 (at an approximate annualised 2 per cent yield), with a key risk to our view being share buyback.”

SGX is scheduled to announce its FY2025 results on Aug 8, and Jaiswal expects positive updates on dividends.

“Unless SGX prioritises building a cash buffer, we believe it could distribute more to shareholders,” he added.