• SGX targets high-single-digit revenue growth in the medium term (FY15-20 CAGR: ~6%). Ramp up of Scientific Beta and BidFX will drive this growth.
• Initiatives of building an integrated FX marketplace, a digital bond issuance and trading platform, and ESG solutions may differentiate SGX from peers.
• Reiterate ADD call on SGX. SGX’s strategy of capturing customers in a multi-asset ecosystem while enhancing its digital capabilities is a smart beta play.

Levering on Cyclical and Secular Trends as a Strategy

• SGX (SGX:S68)’s multi-year journey of building a multi-asset platform is coming together, with management piecing together its strategic moves during its analyst day presentation. SGX aims to leverage on cyclical trends (such as the low interest rate environment as investors yield hunt) and inflationary concerns (increased market volatility) to support its multi-asset strategy, while leaning into secular trends, such as a rising focus on ESG investing (offering risk management products), a growing demand for digitalisation in OTC FX and fixed income (building an integrated FX marketplace across futures/OTC with BidFX and a digital end-to-end fixed income issuance and trading platform via MarketNode and Trumid XT), and growth in passive investing (via Scientific Beta).

Targeting High-single-digit Revenue Growth in the Medium Term

• SGX targets high-single-digit revenue growth (~6% CAGR over FY15-20) in the medium term (~2-3 years) as it implements the initiatives outlined above. Central SGX expects its revenue mix from the equities/FICC/DCI segments to shift towards 60%/25%/15% in the medium term (1H21: 67%/19%/14%).

SGX Does Not Discount M&As; Its Track Record Is Reassuring

• SGX does not discount M & A potential, given its strong three years of acquisition.
• We are reassured that further acquisitions will likely be accretive, given SGX’s positive track record with BidFX and Scientific Beta.

Reiterate ADD on SGX With a S$11.61 Target Price, Based on 25x FY22F P/E

• We think that SGX is on the cusp of stickiness. We reiterate ADD call on SGX deviation above its 10-year mean.

Source: CGS-CIMB Research - 12 Jun 2021