RHB cuts SGX target price to S$20.30 after softer-than-expected Q1

[SINGAPORE] RHB has cut its target price for the Singapore Exchange (SGX) after a softer-than-expected first quarter prompted the brokerage to slash its earnings forecasts for the local bourse operator over the next three financial years.

In a note on Monday (Oct 19), RHB analyst Shekhar Jaiswal lowered his target price on SGX to S$20.30 from S$22.20, representing a 3 per cent downside to its Friday closing price of S$21. He maintained a “neutral” rating on the counter.

The target price reduction follows weaker trading momentum in the first quarter of FY2027 ended Sep 30. Jaiswal noted that implied securities and derivatives activity for the first half of FY2027 tracked 7.4 per cent and 10.2 per cent below RHB’s expectations, respectively.

“We see only part of that gap to close in Q2,” he said, adding that RHB trimmed its securities daily average value (SDAV) and derivatives daily average value (DDAV) assumptions across the board.

Consequently, the brokerage lowered its earnings forecasts for FY2027, FY2028 and FY2029 by 8.3 per cent, 8.4 per cent and 8.5 per cent, respectively. RHB now expects SGX’s recurring net-profit growth to slow to 5 per cent in FY2027, down significantly from 21.1 per cent in FY2026 and 14.9 per cent in FY2025.

RHB’s target price drop followed DBS Group Research on Oct 13 downgrading SGX to “hold” from “buy” and lowering its 12-month target price to S$20 from S$26.40.

That downgrade reflected easing growth momentum in both equities and derivatives after two years of record performance, leaving the stock’s valuation looking “lofty” ahead of SGX’s first-half results, said DBS.

Cooling securities activity

Securities trading activity began cooling in September from earlier highs. While turnover and SDAV in the month rose 27 per cent year on year to S$42.2 billion and S$1.9 billion, respectively, SDAV dropped 11 per cent month on month.

For the first quarter, SDAV stood at S$2 billion, up 33 per cent year on year but down 8 per cent quarter on quarter.

Jaiswal noted that retail investors remained net buyers of Straits Times Index (STI) securities for a third consecutive quarter. Exchange-traded funds (ETFs) tracking the STI saw record net creations of S$293 million, pushing total assets under management above S$6 billion.

Although September’s month-on-month decline in SDAV was largely due to a higher number of trading days, total turnover value also slipped 3 per cent month on month. Index heavyweights made up 80 per cent of trading value, unchanged from August.

At 28.9 times FY2027 forecast price-to-earnings ratio, SGX’s valuation premium over regional peers remains defensible on scarcity value and Singapore’s structural tailwinds, Jaiswal said. However, he cautioned that the stock’s current share price is “discounting SDAV above our prior assumption”.

DBS last Tuesday noted that although securities trading activity remains healthy compared with historical levels, sequential momentum had begun to flatten. The brokerage also raised concerns over the quality and sustainability of equity turnover, citing an increasingly narrow market rally.

FX futures cushion weak derivatives

Growth in SGX’s derivatives business is now relying heavily on foreign exchange (FX) contracts as other segments soften. Derivatives volume slipped 2 per cent year on year to 29.8 million contracts in September, while DDAV was flat at 1.4 million contracts.

FX futures provided a cushion, with total FX volume jumping 53 per cent year on year to 9.6 million contracts as investors sought hedges around US-China trade relations. USD/CNH FX futures surged 47 per cent year on year to 4.9 million contracts, while INR/USD FX futures rose 59 per cent to 3.9 million contracts.

In its note last week, DBS said recurring revenue from market data and connectivity, together with the expanding FX business, will provide some baseline support.

Outside FX, performance across the derivatives complex was subdued. Equity index futures volumes dropped 15 per cent year on year, dragged down by sharp declines in FTSE China A50, FTSE Taiwan, Nikkei 225 and China H50 trading. Iron ore derivative volumes fell 27 per cent.

RHB’s Jaiswal added that a decline in total open interest points to subdued derivatives volumes continuing into Q2.

December seasonal risk

While RHB remains hopeful for month-on-month improvements in Q2 FY2027, Jaiswal warned that December poses a key seasonal risk. He observed that second-quarter SDAV fell quarter on quarter in both FY2025 and FY2026.

RHB’s revised target price of S$20.30 is based on 26 times blended FY2027/2028 forecast earnings per share, plus a 4 per cent environmental, social and governance premium.

Shares of SGX fell 1 per cent or S$0.22 to close at S$20.78 on Monday.