18 October 2016 Asia Pacific/Singapore Equity Research Diversified Financial Services Singapore Exchange Limited (SGXL.SI / SGX SP) Rating NEUTRAL Price (14 Oct 16, S$) 7.25 INITIATION Target price (S$) 7.60 Upside/downside (%) 4.8 Mkt cap (S$/US$ mn) 7,769 / 5,589 Lacks near-term catalysts Enterprise value (S$ mn) 6,887 Number of shares (mn) 1,072 ■ We initiate coverage on Singapore Exchange with a NEUTRAL rating Free float (%) 71.3 and target price of S$7.60. The key investment case for SGX is longer-term 52-wk price range (S$) 8.05-6.65 ADTO-6M (US$ mn) 10.3 growth through both equities and success in its strategy to become an Asian *Stock ratings are relative to the relevant country benchmark. regional gateway, with derivatives being the medium-term driver, in our view. ¹Target price is for 12 months. Nearer-term, its fortunes are more linked to the current level of market activity, Research Analysts which remains uninspiring, with a risk of further seasonal slowdown in 4Q. Rikin Shah 65 6212 3098 ■ Securities business remains subdued. Securities turnover and revenue hit
[email protected] the decade low in FY16. The subdued turnover is mainly a result of declining velocity (peak-to-date -43%), but a dearth of IPOs and an increase in privatisation deals have further exacerbated the situation. We discuss a few structural drivers like higher free float and high frequency trading, which could improve velocity in the long term. ■ Derivatives growth secular and less volatile. Derivatives' revenue growth of 18% CAGR in the past five years has been a great stabiliser—more than offsetting a 7% fall in securities revenue.