Singapore Exchange - CGS-CIMB Research 2020-09-14: Bidding Up Its Multi-Asset Platform


Singapore Exchange - Bidding Up Its Multi-Asset Platform

  • BidFX combines SGX’s capabilities for both OTC FX and FX futures, thereby expanding its addressable market and suite of risk management tools.
  • SGX’s Jul-Aug trading data track slightly above our FY21F expectations; its new FTSE Taiwan contract is gaining traction vs. HKEx’s MSCI Taiwan Index.
  • Reiterate ADD for SGX on valuation (0.5 s.d. below historical mean) and 3.8% yield. Its S$603m net cash (as of end-FY20) paves the way for potential M&As.

Reiterate ADD on SGX for its FX growth engine

  • SGX (SGX:S68) hosted an analyst briefing to share more about its US$128m (c.S$179m) BidFX acquisition; we remain constructive that this could be a stronger earnings contributor in the medium-term given its positioning in the fast-growing FX market and complementary OTC product offering, which could pose upside to our FY22-23F EPS forecasts. For more about BidFX, see PDF report attached below.
  • Other structural tailwinds include the electronification of FX trading and uncleared margin rules for non-centrally cleared derivatives.
  • Coupled with a 3.8% FY21F dividend yield, our target price of S$9.00 (pegged to its 10-year mean of 22.7x forward P/E) implies c.10% upside from the current level. Reiterate ADD on SGX, with faster ramp-up of its recent acquisitions, initiatives and the new FTSE Taiwan index futures as key re-rating catalysts.
  • Downside risks: market risk-off, as well as unfavourable developments from the MSCI A-share futures and SGX-NSE Nifty resolution.

Jul-Aug market stats tracking slightly above our FY21F forecasts

  • Based on its recent trading data, SGX’s SDAV increased 14.8% and 18.4% y-o-y to S$1.2bn and S$1.4bn in Jul and Aug, respectively, thanks to portfolio rebalancing activity, a buoyant US market and vaccine hopes. The total derivatives volumes for the same period were c.2% higher y-o-y, driven by China A50 growth but fewer FX futures.
  • FYTD both segments are performing marginally above our FY21F projections of S$1.19bn SDAV and c.244m derivatives contracts traded; we see upside potential should there be greater market volatility.
  • SGX continues to develop more equity derivatives and initiatives, including Asia’s first international REIT futures and 13 new futures contracts in partnership with FTSE. We believe these would be incrementally more positive after 1-2 years when there is sufficient liquidity in the market.

Slow and steady for SGX’s FTSE Taiwan index products

  • Launched on 20 Jul (US CFTC approved on 24 Jul), SGX’s FTSE Taiwan index futures have been gradually ramping up in volumes to 82k and 352k in Jul and Aug, respectively, as compared to HKEx’s MSCI Taiwan Index futures of 4.7k and 7.5k in the same two months.
  • Open interest for SGX’s FTSE Taiwan index futures is also higher at 6.5k (vs. HKEx MSCI Taiwan futures: 1.5k) as of end Aug 20, with client participation in Aug growing more than 50% to over 90 trading entities. The introduction of these two new contracts has not resulted in a steep drop in SGX’s existing MSCI Taiwan index volume (expiring in Feb21).
  • See SGX Share Price; SGX Target Price; SGX Analyst Reports; SGX Dividend History; SGX Announcements; SGX Latest News.
  • For more about BidFX, see PDF report attached below.

NGOH Yi Sin CGS-CIMB Research | https://www.cgs-cimb.com 2020-09-14
SGX Stock Analyst Report ADD MAINTAIN ADD 9.000 SAME 9.000