Singapore Exchange - Phillip Securities 2021-06-16: Taking Multi-Asset Business To Next Level

SINGAPORE EXCHANGE LIMITED (SGX:S68)

Singapore Exchange - Taking Multi-Asset Business To Next Level

Singapore Exchange (SGX:S68) is focusing on building a multi-asset exchange, widening its partnerships and networks and growing its international presence.
Growth pipeline includes M&A targets that will augment its offerings, accelerating the growth of Scientific Beta and building an integrated forex marketplace to increase revenue contributions from the current 6%.
S$55mn – S$60mn capex set aside to modernise its system architecture, digitalise and invest in its foreign exchange and fixed-income businesses.
Maintain ACCUMULATE with higher target price of S$11.25, from S$11.01. Our target price is now pegged to its historical five-year mean of 23x FY21e P/E vs -1 standard deviation previously in view of its stronger growth prospects.

At its recent Analysts’ Day, SGX detailed its plan to strengthen its core businesses and invest in its next leg of growth.

SGX remains committed to expanding its suite of products through strategic partnerships and new product development for newly-acquired businesses with the aim of serving clients end to end. Fixed Income, Currencies and Commodities (FICC) and Data Connectivity and Indices (DCI) made up 33% of its revenue in 1HFY21, up from 20% in FY15.
FICC and DCI will remain SGX's growth engines, providing opportunities from cross-selling and new client acquisitions to an enlarged trading network. The exchange will deploy proceeds from its recent bond issuance of S$380mn to scale up its presence in FICC and DCI.

SGX is seeking out M&As to build capabilities in newer segments. It will seek “fill the gap” deals that will enhance its end-to-end offerings to clients. Its recent acquisitions of Scientific Beta and BidFX is a case in point.
The acquisition of Scientific Beta, a smart beta firm in January 2020, for €186mn or S$280mn in cash is expected to be earnings-accretive to SGX in FY21e. Over 60 asset owners and asset managers use Scientific Beta’s indices to track or benchmark their smart beta investments. We estimate about 30% of these assets under replication were integrating ESG dimensions. We see SGX relying on Scientific Beta to create new products to mitigate the loss of MSCI product volumes.

SGX reports a healthy pipeline of potential listings across sectors and geographies. With market infrastructure and processes in place, it also sees the potential for increased secondary listings of unicorns from the US via its Nasdaq partnership.

As SGX invest in acquiring new clients in new markets and on its platforms, its margins are expected to be lower in the near term. It has set aside S$55mn – S$60mn for capex to modernise its systems architecture, digitalise and invest in its foreign exchange and fixed income businesses. It expects these investments to increase its revenue CAGR to 7-9% in the medium term from a 6% CAGR in the last five years.

We believe SGX remains committed to expanding its suite of products through strategic partnerships and new product development for newly-acquired businesses.
We see the potential for client acquisition in new markets and increased penetration by cross-selling new asset classes and products. We see its effort starting to pay off with the average number of products traded by its top 30 clients rising by more than 30% over a 5 year period.

Maintain ACCUMULATE call on SGX with higher target price of S$11.25, from S$11.01. Our target price is now pegged to its historical 5-year mean of 23x P/E, up from -1 standard deviation previously to capture its longer-term prospects.
See

Terence Chua Phillip Securities Research | https://www.stocksbnb.com/ 2021-06-16

SGX Stock Analyst Report ACCUMULATE MAINTAIN ACCUMULATE 11.25 UP 11.010