Singapore Exchange SGX - CIMB Research 2015-12-09: Unexciting near term; potential in longer term

Singapore Exchange - CIMB Research 2015-12-09: Unexciting near term; potential in longer term SINGAPORE EXCHANGE LIMITED SGX S68.SI 

Singapore Exchange - Unexciting near term; potential in longer term 

  • We expect securities ADVT to remain around S$1.2bn in FY16. 
  • Derivatives volume growth to slow as demand for China A50 futures moderates, partially offset by ramp-up in new products volume. 
  • Aims to attract new listings in the digital and consumer sectors, which could drive listing revenue after the recent dry spell. 
  • Maintain Hold, with a DDM-based target price of S$7.98. 

■ Securities ADVT to remain around S$1.2bn; lower clearing rate 

  • Securities average daily traded value (ADVT) has remained in the S$1.1bn-1.2bn range in recent quarters, given weaker investor sentiment amid the slowdown in China and the region. 
  • We continue to expect securities ADVT to remain around S$1.2bn in FY16, in the absence of an extended period of market volatility. 
  • We also expect a slight tapering of the securities clearing rate compared to FY15 as SGX continues to give out rebates to participants of the market maker and liquidity provider programme (MMLP). 

■ Record derivative growth unlikely to sustain 

  • FY15 saw a record 42% yoy growth rate in derivative revenue, driven by a surge in demand for the China A50 index futures amid an A-share market boom and bust. 
  • We expect growth in derivatives to slow in FY16 given falling traded volume of the China A50 product, albeit partially offset by growth in new derivative products (e.g. FX futures). 

■ Diversifying revenue streams 

  • Management’s goal is to diversify SGX’s revenues to reduce its reliance on single products (e.g. China A50 futures, Nikkei 225 futures). 
  • Future areas of focus include: 
    1. FX futures, 
    2. fixed income, and 
    3. market data. 
  • It recently launched SGX Index Edge, a provider of Asian-focus index services, and will launch its bond trading platform, SGX 

■ Bond Pro, in the next few months. 

  • Targeting listings in digital and consumer sectors Singapore’s IPO market was dreary in 2015. Market conditions aside, SGX’s inability to attract new listings has to do with poor liquidity. 
  • It introduced initiatives such as the MMLP and reduction in board lot sizes to improve liquidity, and will continue to roll out more programmes. 
  • For new listings, SGX is targeting companies in the digital and consumer sectors, in addition to its niche in REITs and healthcare. 

■ Potential beneficiary of AEC, but further out 

  • Looking ahead, we think the ASEAN Economic Community (AEC) could be beneficial for SGX in terms of new listings, which will in turn drive better trading volumes. 
  • As Singapore is viewed as an ASEAN hub, more companies are likely to set up shop in Singapore and look for listings on SGX to raise capital. However, we think the positives are likely to be further out. 

■ Maintain Hold 

  • SGX is trading at 20x forward P/E (0.5 s.d. below mean), which we believe is a fair valuation for flat securities ADVT, moderating derivative volumes and a weak IPO market in FY16. 
  • We maintain our Hold rating, with an unchanged DDM-based target price of S$7.98.

Jessalynn CHEN CIMB Securities | Kenneth NGCFA CIMB Securities | http://research.itradecimb.com/ 2015-12-09
CIMB Securities SGX Stock Analyst Report HOLD Maintain HOLD 7.98 Same 7.98