RHB maintains 'neutral' rating even as SGX posts strong March

The robust momentum was offset by the softer derivatives volume.

The Singapore Exchange (SGX) reported strong March operating data in securities trading, but derivatives volume came in softer than expected, prompting RHB to maintain its “Neutral” rating with a target price of $13.60, reflecting a potential 7.2% upside.

“We remain positive on Singapore Exchange benefitting from the expected elevated near-term market volatility,” RHB stated in its latest company update. However, the firm noted that “derivatives volume was below our estimates,” offsetting the bullish momentum seen in cash equities.

SGX’s securities market posted its highest daily average traded value (SDAV) since May 2022. March turnover surged 25% YoY to $29.7b, with SDAV reaching $1.5b. The Straits Times Index (STI) crossed the 4,000 mark for the first time on March 28, outperforming ASEAN benchmarks.

“The rally was supported by continued net institutional inflows into small- and mid-cap stocks,” RHB said, highlighting broader market confidence. SGX also launched new product offerings, including Singapore Depository Receipts (SDRs) on Xiaomi, Meituan, and Ping An, and an ETF under the SSE-SGX ETF Link.

Derivatives trading volumes increased by 14% year-over-year (YoY) to 27.4 million contracts in March, with a daily average volume up 12% to 1.3 million contracts. Whilst strong in isolation, RHB flagged that the implied Q2 volumes were 3.4% below estimates.

“Strong participation and record volumes across asset classes underscored investor confidence,” RHB said, but warned the shortfall in expectations could temper near-term sentiment.

The research firm kept its valuation approach unchanged, applying a 22x P/E multiple, slightly above SGX’s historical 21x average.

“We expect the announced measures to translate into higher securities trading volumes only in FY26-27,” RHB noted, referring to reforms initiated by the Monetary Authority of Singapore aimed at boosting market activity.

Whilst operating data has been updated in forecasts, the report emphasised, “no material changes to estimates” were made, with RHB’s revenue and earnings projections remaining above market consensus.

SGX maintained a strong ESG profile with a total score of 3.3 out of 4. RHB adds a 4% ESG premium to its valuation due to this score, which outperforms the national median of 3.1.

The exchange’s Scope 2 emissions rose temporarily in FY24 due to office and data center consolidation but are reportedly now trending downward. SGX is still “on track to reduce Scope 2 absolute emissions by 42% by FY31 from its FY21 baseline.”

Whilst SGX continues to show strength in securities trading and maintains ESG leadership, weakness in derivatives and a relatively unattractive yield (3% vs STI’s higher benchmark) keep RHB on the sidelines.

“Valuation stays reasonable amidst a falling growth outlook and downside risks to treasury income,” the firm concluded.