CGS-CIMB Research analysts Andrea Choong and William Tng have upgraded Singapore Exchange (SGX) from “hold” to “add”, with an unchanged target price of $10.40.
The analysts believe that SGX’s position as a financial hub in Asia could be boosted through future listings via special purpose acquisition companies (SPACs).
“Incremental listing fees from SPAC may not be material for SGX but we believe the progressive listings of tech-related and new economy companies may lift valuations of the broader market over time,” they write in a Dec 9 research note.
Citing Bloomberg reporting, Choong and Tng highlight that Tikehau Capital, Vertex Holdings and Novo Tellus are amongst the first to apply for a SPAC listing on the SGX, with the aim to raise $200 million via their respective IPOs slated to happen by end-2021.
“Apart from a list of regional unicorns such as Carro, Carousell, and Ninja Van that could be likely SPAC targets, we opine that the trio could also target their own portfolio of investee companies. For example, Novo Tellus has Novoflex and Tessolve. Tikehau’s investment portfolio centres in Europe, and Vertex (or Temasek’s) portfolio of non-core investments are numerous,” they add.
In their research note, Choong and Tng also compared SGX’s SPAC regulations to those around the globe, noting that SGX’s rules are largely aligned with the US. “SGX’s SPAC listing requirements of limiting the sponsor’s promote threshold to 20%, allowing public investors the right of redemption regardless of their voting stance on the business combination, and allowing warrants to be detachable from each ordinary SPAC share are consistent with the market practices in the US,” they remark.
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When compared to Hong Kong, the analysts point out that SGX’s regulations are less rigid, with only professional investors with portfolios of over HK$8 million ($1.4 million) allowed to invest in a SPAC until it has merged with a target company.
Meanwhile, RHB Group Research has lowered its target price for SGX from $11.10 to $10.30, despite being sanguine on the company’s growth outlook.
“We are positive about SGX’s long-term growth prospects from its latest acquisitions and potential pipeline of ETF, REIT, and SPAC listings. However, we remain concerned about near-term elevated operating expenses due to the consolidation of various acquisitions, before the revenue catches up in the mid-term,” writes analyst Shekhar Jaiswal in a Dec 10 research note.
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Jaiswal points out that management has guided for higher operating expenses over the next 12 to 18 months before revenue catches up and margins recover.
In addition to costs, Jaiswal is bearish on SGX’s lower securities trading volumes. “Year-to-date for FY2022 [ending June], total securities market turnover value and securities daily average value stood at $102.7 billion and $1.2 billion, respectively. On an annualised basis for FY2022, this is 13% below our estimates,” he comments.
To that end, he has cut his FY2022 earnings forecast by 4% to reflect the lower volumes, while raising his FY2023 to FY2024 earnings estimates by 5% each.
His lower target price is pegged to a P/E ratio of 23 times, down from 25 times previously. The lower P/E ratio is close to one standard deviation above its historical average and includes an 8% ESG premium, Jaiswal says.
He also notes concerns remain among investors on SGX’s intention to introduce a scrip dividend scheme that would allow shareholders to reinvest in SGX’s shares, especially if the scrip dividend is issued at a discount.
As at 4.48pm, shares in SGX are down 1 cent or 0.11% lower at $9.44.
