Singapore Exchange - CIMB Research 2018-02-06: Towards A Malaysia-Singapore Connect

Singapore Exchange - CIMB Research 2018-02-06: Towards A Malaysia-Singapore Connect SINGAPORE EXCHANGE LIMITED S68.SI

Singapore Exchange - Towards A Malaysia-Singapore Connect

  • Monetary Authority of Singapore (MAS) and Securities Commission Malaysia (SC) announced the establishment of the BM-SGX trading link, with operational model and finer details to be finalised by end-2018.
  • This will allow a more seamless, cost-efficient access to each other’s markets with a combined market cap of over-US$1.2tr and 1,600 listed companies. If successful, this could boost interest and vibrancy in both capital markets, in our view. 
  • We make no changes to our forecasts and Target Price. Maintain ADD.



SGX-Bursa to establish stock market trading link

  • On 6 Feb 2018, the Monetary Authority of Singapore (MAS) and Securities Commission Malaysia (SC) announced the establishment of the Bursa Malaysia (BM) – Singapore Exchange (SGX) trading link, following efforts of the ASEAN Capital Markets Forum. This would allow both exchanges to jointly-develop their capital markets, by promoting wider interest in listed companies and improving trading liquidity in both markets.
  • This new initiative currently pertains to traded stocks only, whose post-trade arrangements include clearing in the listing home market, and settlement in the investors’ home market. There will be joint regulatory supervision and enforcement arrangements by MAS and SC, while each market will continue to be governed by its own listing, trading and clearing rules and regulations.
  • The finer details of the operational model and safeguards for the trading link will be worked out together by SGX and BM; these are expected to be finalised by end-2018, based on news reports.


If successful, this could replicate the HK-China stock connect

  • By enabling a more efficient transaction experience at lower costs, and better diversified stock universe, we believe this trading network is likely to benefit retail participants more than institutional investors. This initiative could also encourage more cross-border research reports and facilitate information exchange.
  • Similar sector/companies listed on SGX that currently trade at lower valuations than their peers on Bursa could also be potential beneficiaries of the trading link, in our view.
  • If successful, this BM-SGX trading link could replicate the success of the Hong Kong-China stock connect, in terms of higher cross-border trading and investment flows, possibly resulting in higher trading turnover for SGX.
  • Both northbound and southbound trading of HK-China stock connect have seen tremendous growth in average daily turnover, since it commenced in Nov 2014. However, previous attempts to create similar connectivity between bourses within ASEAN have not been successful. According to news reports, the ASEAN Trading Link started between SGX and BM in 2012 (followed by the Stock Exchange of Thailand) was subsequently decommissioned in Oct 2017.
  • Recall also that the older Central Limit Order Book (or CLOB, an over-the-counter market in Singapore that traded mainly in Malaysian stocks) back in 1990s led to much investment losses and unhappiness among Singapore investors, after it was deemed to be an “illegal market” by the Malaysian government.


No change to our forecasts and S$8.50 Target Price; maintain ADD

  • Our FY18-20F projections and target price of S$8.50 (pegged to 24x FY19F P/E, its historical mean) remain unchanged. 
  • Maintain ADD on the stock as we remain positive on its earnings outlook from thriving market activity, expanded product offerings (e.g. Indian single-stock futures), healthy IPO pipeline and other initiatives (launch of dual-class share structure).
  • Stronger traction in new products and synergistic M&As are potential catalysts, while market returning to a risk-off mode is a key downside risk.




NGOH Yi Sin CIMB Research | http://research.itradecimb.com/ 2018-02-06
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 8.500 Same 8.500



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