Singapore Exchange Ltd (SGX SP) - Maybank Kim Eng 2018-03-08: NDR Highlights ~ More Opportunities Ahead

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SINGAPORE EXCHANGE LIMITED S68.SI

Singapore Exchange Ltd (SGX SP) - NDR Highlights: More Opportunities Ahead

Positive on growth strategies 

• During our recent NDR with SGX in Malaysia, investors were interested in: 
  1. growth strategies and opportunities; and
  2. the latest developments on the BM-SGX trading link and SGX India equity derivatives. 
• We believe SGX is a good proxy for the market cycle, with healthy FY18-19E ROEs of ~35% and yields of ~4%. 
• Maintain BUY and Target Price SGD8.73, based on an unchanged P/E of 23x FY19 EPS, in line with its mean since 2012.

Grow FX and fixed income; open to inorganic growth 

• SGX will diversify revenues by focusing on FX and fixed income for further growth. Currently, it has 21 currency futures and options contracts (in contrast to 6 currency futures in Jan’14) with significant volume market share in USD/CNH ( > 70%) and INR/USD ( > 40%) in 2Q18. It looks to offer more FX contracts. 
• On fixed income, SGX is well-positioned to ride the Asian growth story as more Asian issuers come on board. New bond listings rose 85% y-o-y to 636 as at 1H18 (1H17: 343). For SGX Bond Pro, it expects USD1b matched volumes by 2018. 
• 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.

Focus on attracting technology companies 

• Technology is one of the sectors that SGX will focus on for its listing strategy. 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 SGD1-5b.

Recent developments 

• The details of the BM-SGX trading link are still being worked out with the timeline set to be end-2018. We view this as a positive development and expect synergies to come through in this government-to-government initiative (see report: Singapore Exchange - Another Positive Catalyst). 
• On SGX India equity derivatives, it is:
  1. working with NSE to develop a link in GIFT City; and 
  2. to list successor products soon (which require regulators’ approvals) and plans to engage market participants to roll into these successor products from the current SGX Nifty suite of products.

Swing Factors

Upside

• Stronger-than-expected SDAV and derivatives daily average volume (DDAV).
• Sizeable acquisitions or partnerships that can offer complementary or new product offerings to lift revenue.

Downside

• Inability to price up due to competition from other exchanges and new entrants.
• Capital-raising efforts to make large acquisitions could dilute ROEs.

Ng Li Hiang Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2018-03-08

Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 8.730 Same 8.730