Business

Brokers’ take

Compiled by Andrea Soh

SINGAPORE EXCHANGE | BUY (INITIATE)

DEC 23 CLOSE: $7.43

TARGET PRICE: $8.30

Maybank Kim Eng, Dec 20

We initiate coverage of SGX with a "buy" and TP $8.30, based on 23 times FY19E EPS, in line its P/E mean since 2012.

SGX focuses on its multi-asset strategy to grow different businesses and asset classes.

We see support from its strong cash position, healthy balance sheet and decent dividend yields of 4 per cent.

SGX is a good proxy to ride the cyclical upturn. We see scope for earnings to improve from:

1) higher market cap from healthy IPO pipeline, barring significant market risk-off sentiment;

2) stronger momentum of SDAV (securities daily average traded value); and

3) DDAV (derivatives daily average volume) growth to sustain on the back of higher open interest, expansion of its product offerings and its ability to extend the derivatives value chain.

Low turnover velocity, low valuations of companies and lack of bigger IPO listings are structural issues for its equities business. Clearing fees are also likely to trend lower.

For derivatives, concentration risk exists as volume growth is driven by key contracts.

That said, it looks to diversify volume and revenue mix through other products such as FX futures.

Despite higher ROEs of 34-35 per cent for FY18-19E, SGX currently trades at 20.6 times FY19E EPS, a discount to its regional peers' 32.3 times.

We use a shorter P/E band since 2012 as SGX has been trading sideways at ~21-27 times.

We think SGX's valuations should revert to the mean from upside in a cyclical upturn.

Downside risks: lower SDAV/DDAV, significant regulatory changes/potential disruptors, competition and capital raising.


SINGAPORE STRATEGY

CIMB Research, Dec 19

In this lull-season report, we showcase short- and medium-term technical analyses for 33 stocks, including those on the FSSTI and 10 fundamental picks for 2018.

Our fundamental Alpha picks remain unchanged: Keppel Corp (TP: $8.58), Venture Corporation (TP: $24.74), UOL (TP: $9.62), Genting Singapore (TP: $1.45), Sembcorp Marine (TP: $2.49), AEM Holdings (TP: $4.55), Memtech (TP: $1.33), mm2 Asia (TP: $0.76), Yongnam (TP: $0.53) and Sunningdale (TP: $2.79).

Disclaimer: All analyses, recommendations and other information herein are published for general information. Readers should not rely solely on the information published and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.