SINGAPORE (Mar 8): Maybank Kim Eng Research is keeping its “buy” call on Singapore Exchange (SGX) with an unchanged target price of $8.73 ahead of possible growth opportunities on the horizon.
Among the latest developments is the proposed setting up of a stock market trading link between Bursa Malaysia (BM) and SGX by the end of 2018.
Under the proposed arrangement initiated by the Monetary Authority of Singapore (MAS) and the Securities Commission Malaysia (SC), investors can trade and settle shares listed on each other’s stock market in a more convenient and cost efficient manner.
See: Malaysia and Singapore to set up stock market trading link
“We view this as a positive development and expect synergies to come through in this government-to-government initiative,” says analyst Ng Li Hiang in a Thursday report.
Meanwhile, investors are keeping a close watch on developments with SGX India equity derivatives.
This comes after escalating tensions threaten to kill off an 18-year licensing partnership between SGX and the National Stock Exchange of India.
See: Singapore Exchange seeks to defuse tensions over National Stock Exchange of India in futures dispute
Shares in SGX took a tumble after stock exchanges in India announced they intend to restrict the usage of Indian indices and market data by foreign exchanges, indices and data providers.
This sparked concerns that the move would prevent SGX from continuing to offer derivatives based on India’s benchmark Nifty 50.
See: SGX shares opens near 7% lower on Nifty futures exit news
“On SGX India equity derivatives, [SGX] is working with NSE to develop a link in GIFT City; and to list successor products soon (which require regulators’ approvals),” says Ng. “[SGX] plans to engage market participants to roll into these successor products from the current SGX Nifty suite of products.”
According to Ng, the Singapore bourse is also looking to diversify revenues by focusing on foreign exchange and fixed income for further growth.
“SGX is also open to inorganic opportunities, such as trading platforms that can complement its FX/fixed income business. It has the ability to leverage given its healthy balance sheet with zero debt,” the analyst says.
See: SGX said to express interest in acquiring Tel Aviv Stock Exchange
See also: SGX inks MoU with New Zealand Stock Exchange to cooperate in Asia Pacific markets
In addition, SGX wants to attract more technology companies to list on the bourse.
“It looks to target start-ups over the next few years and is positive that the collaboration with Nasdaq can facilitate cross-listing of technology companies on both exchanges. On dual class shares, it intends to target listings of companies that are between $1-5 billion,” Ng says.
In the 2Q18 ended December, SGX's quarterly earnings came in flat at $88.4 million, even as revenue edged up by 3% to $205 million.
See: SGX posts flat 2Q earnings of $88 mil as higher costs offset revenue rise
“We believe SGX is a good proxy for the market cycle, with healthy FY18-19 ROEs of approximately 35% and yields of approximately 4%,” says Ng.
As at 11.11am, shares of SGX are trading 6 cents higher at $7.50, or 21.5 times FY18 earnings.
