Valuation of SGX shares ‘attractive,’ earnings growth to return, Credit Suisse says

Singapore one dollar bill

Singapore Exchange is set to return to earnings growth after five years as a volume recovery gives a fillip to revenue growth and operating leverage turns favourable, Credit Suisse said.

“The first two months of 2018 mark the strongest beginning to a year since 2013,” Credit Suisse said in a note on Friday. “With the volatility staging a comeback globally, it provides a nice backdrop to SGX’s market-related businesses.”

More listings expected

It noted that while there were three delistings, management expects 2018 listings to be higher than last year.

“Some of the companies looking to list on SGX are Ayondo (Fintech), Summit Power (Bangladeshi power producer) and Luye Medical,” Credit Suisse noted. “SGX is also going to allow dual-class shares in the first half of 2018, and expects first listing soon after that.”

It said it was assuming 2018 average daily turnover (ADT) for equities of S$1.24 billion, compared with March-to-date ADT of S$1.45 billion. Additionally, it noted that derivative daily average volume in February hit a nearly all-time high.

Valuations ‘attractive’

Credit Suisse said it expected derivatives volume to grow at a low-teens compound annual growth rate (CAGR) over the next three years on new product launches and SGX’s ability to extend its value chain.

The stock’s valuation is attractive at 20.6 times forward price-to-earnings, compared with Asian exchanges’ average of 24.8 times. It also expected that the launch of the Nifty successor contracts in August should help re-rate the stock.

Credit Suisse rates the stock at Outperform, with a S$9.00 target.

The stock ended Friday up 0.4 percent at S$7.50.

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