Singapore Exchange Limited – Taking multi-asset business to next level June 16, 2021 1053

PSR Recommendation: ACCUMULATE Status: Maintained
Last Close Price: SGD9.08 Target Price: SGD11.25
  • SGX 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 TP of S$11.25, from S$11.01. Our TP is now pegged to its historical five-year mean of 23x FY21e PE vs. -1SD 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.

The Positives

+ Focus on building multi-asset exchange. 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 (Figure 1).

FICC and DCI will remain its 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.

+ Pipeline for growth includes acquisitions, accelerating growth of Scientific Beta and building an integrated forex marketplace. The bourse 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 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 the bourse relying on Scientific Beta to create new products to mitigate the loss of MSCI product volumes.

+ Healthy pipeline for rest of 2021. The bourse 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.


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About the author

Profile photo of Terence Chua

Terence Chua
Senior Research Analyst
Phillip Securities Research

Terence specialises in the consumer, conglomerate and industrials sector. He has over five years of experience as an analyst in the buy- and sell-side. As an institutional fund management analyst, he sat on the China-Hong Kong desk. Terence was ranked top 3 for Best Analyst under the small caps and energy category in the Asia Money poll 2018.

He graduated from the Singapore Management University with a major in Finance (Honours), and is the honoured recipient of the CFA scholarship.

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