She reiterates her ‘add’ call for the counter with an unchanged target price of $11.61 that’s pegged to FY2022 ending June P/E of 25 times.
Choong notes that SGX aims to leverage on cyclical trends, which include a low interest rate environment and inflationary concerns. In addition, SGX intends to cater to secular trends, including a rising focus on ESG investing, higher demand for digitalisation in over-the-counter (OTC) foreign exchange and fixed income, and growth in passive investing.
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To that end, SGX has pursued a robust multi-asset offering across its three key segments of equities; fixed income, currencies and commodities (FICC); and Data, Connectivity & Indices (DCI), whether by organically building solutions in-house, or via acquisition or strategic partnerships.
Initiatives include offering risk management tools for improving portfolio ESG performance, building an integrated FX marketplace across futures/OTC with BidFX, rolling out a digital bond issuance and trading platform via MarketNode and Trumid XT, and its acquisition of a stake in Scientific Beta. Choong believes the initiatives may differentiate SGX from its peers.
Given the rollout of the initiatives, Choong highlights that SGX is targeting high-single-digit revenue growth in the medium term, predominantly driven by Scientific Beta and BidFX as operations scale up. “Both entities are profitable — a positive indication towards achieving the revenue target, in our view,” she says.
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SGX expects its revenue mix from the equities/FICC/DCI segments to shift towards 60%/25%/15% in the medium term, compared to 67%/19%/14% in 1H2021.
Given SGX’s strong balance sheet, Choong also notes that SGX does not discount mergers and acquisitions. “We are reassured that further acquisitions will likely be accretive, given SGX’s positive track record with BidFX and Scientific Beta,” she adds.
Meanwhile, PhillipCapital analyst Terence Chua highlights that 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," he notes in June 16 research note.
In addition, he anticipates SGX to capitalise on Scientific Beta to create new products, offsetting the loss of MSCI product volumes.
Chua has kept his "accumulate" call for the counter with a higher target price of $11.25, from $11.01 previously. "Our TP is now pegged to its historical five-year mean of 23 times FY2021 P/E versus -1 standard deviation previously in view of its stronger growth prospects," he says.
Shares in SGX closed up 27 cents or 2.52% higher at $10.98 on June 15.
Photo: SGX
