SINGAPORE (March 28): CIMB is upgrading Singapore Exchange to “add” with a target price of $8.09 after reviewing the initiatives CEO Loh Boon Chye have implemented 20 months after taking the helm at Singapore Exchange.
“We see improved market liquidity, better retail participation, healthier pipeline of IPOs, better cost management and a more targeted business focus,” says analyst Jessalyn Chen in a Monday report.
“Larger M&As could be on the cards. Acquiring a market data or index business could provide the next leg up for earnings amid unpredictable stock market volumes,” adds Chen who says the most tangible changes implemented by Loh were cost-efficiency measures.
For FY17, SGX lowered its cost guidance to $405–415 million from $420–430 million previously, thanks to group restructuring, paced out hiring, cutback on discretionary spending and better external vendor management.
Loh has also tried to improve access to retail participants and boost liquidity. Starting May, SGX will stipulate a minimum 5% allocation of IPO offer size to retail investors, or $50 million, whichever is lower.
SGX’s sectorial approach to attracting listings is also paying off, with a healthy pipeline of new listings in 2017 expected to come from the consumer, real estate, infrastructure and technology sectors that SGX has worked hard to build a niche in.
In 8MFY17, SGX clinched 11 new IPOs, more than double the five new listings in FY16.
SGX is also considering allowing for dual-class shares, which could attract listings from technology firms that would otherwise have gone to competing exchanges.
“With a war chest of $395 million and room to gear up/raise funds, we think SGX could look for large M&As,” says Chen.
Areas of consideration include fixed income, foreign exchange, market data and indices.
“We think acquisitions in the latter two categories would provide more meaningful earnings uplift and diversification. Among the leading index businesses, only the MSCI is not currently owned by an exchange or recently acquired.”
Shares of SGX are up 5 cents at $7.61.
