Singapore Exchange upgraded to Buy by DBS on strong demand for risk management

SGX building on Shenton Way in SingaporeSGX building on Shenton Way in Singapore

DBS upgraded Singapore Exchange to Buy from Hold, pointing to strong demand for risk management instruments amid market uncertainty.

SGX’s current price-to-earnings valuation is also undemanding, with the stock trading below its five-year historical mean, DBS said.

Singapore Exchange reported Wednesday its net profit for the full fiscal year rose 7.7 percent on-year to S$391.10 million, its highest in 11 years, mainly due to a strong derivatives business performance.

DBS said the strong derivatives revenue has been buffering a weaker equities performance for several quarters, with the addition of new derivatives products set to drive growth. Derivatives volume has grown at a five-year compound annual growth rate of 15 percent, DBS said.

“Going forward, SGX targets to double its Data, Connectivity and Indices, as well as Fixed Income, Currencies, Commodities businesses in the next five years as SGX look into bolt-on acquisitions to fuel its growth,” DBS said in a note earlier this week.

“Among which, SGX aims to capture the digitalisation of the Fixed Income markets and rising convergence of OTC and listed FX and commodity markets as well as continues building its Index Business to capture the shift towards passive investing,” the bank added.

DBS raised its target price on SGX to S$8.30 from S$7.05, based on higher return on equity assumptions.

Shares of SGX were up 2.31 percent at S$7.96 at 4:48 P.M. SGT.

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