Singapore Exchange due diligence report.

Oto Suvari
Dec 3, 2019 · 4 min read

Hatchworks has conducted due diligence on Singapore Exchange Limited, an investment company based in Singapore that provides various services related to securities and derivatives trading. It’s listed on the Singapore Exchange under the symbol ‘’SGX’’.

Financials — Singapore Exchange Limited
(Source: Marketscreener.com)

Singapore Exchange Limited’s current market cap is $9.47B and stock price is around $6.53

With a predicted net-income growth of 5% for 2020E and 2021E, and a net income estimate for 2021E of in excess of $440M, this points to a P/E ratio of 21.6x. Whereas competitor, London Stock Exchange PLC (LSE) shows a more expensive P/E ratio of 33.6x for 2021E.

The revenue/sales forecast is $959M for 2020E, indicating an EV/Sales ratio of 9.09x.

In terms of profitability, a strong operating margin of 51.5% is predicted for 2020E.

Singapore Exchange Limited (SGX) offers a stable yield, namely 3.57% for year 2020E. Competitor, NASDAQ (NDAQ) offers a lower yield of 1.89% for 2020E.

According to a recent market statistic report, Singapore Exchange Limited (SGX) achieved strong volume gains for the securities market, namely an increase of 9.2% compared with the previous month. However, the volume of the derivatives market decreased by -12%.

After the previous recession we can conclude that SGX remained stable and profitable. They had a strong operating profit margin of 61.7% , net profit margin of 51.3%, and a revenue growth of 22% in 2009. However, the total volume of the securities market had a decline of -26%. In contrast, the total volume of derivatives markets had an increase of 8% in 2009. The share price dipped to a low of $3.10 during that period before steadily recovering again.

It’s also worth noting that 75% of revenues are from securities, and just 25% from derivatives.

Some other recent news has shown that Singapore Exchange Limited (SGX) will decrease its Securities Borrowing and Lending (SBL) program rates. This can have some benefits for both borrowers and lenders and it’ll be more attractive for institutions to borrow from the SBL program. This could result in an increase of loans and revenues for SGX.

According to our analysis, Singapore Exchange Limited has a strong operating margin, holds a net-cash position, shows a relatively good yield and remained quite stable during economic weaknesses. Therefore, Hatchworks has taken a position.

The Hatchscore is 5.6 out of 10. Full details can be found on Hatchnet: www.hatch-net.com/companies


What is Singapore Exchange Limited?

The Singapore Exchange Limited is an investment company based in Singapore that provides various services related to securities and derivatives trading. SGX is a member of the World Federation of Exchanges and the Asian and Oceanian Stock Exchanges Federation.

Big Investors:

  • Temasek Holdings Pte Ltd.
  • Capital Research & Management Co.
  • Japan Exchange Group, inc.
  • The Vanguard Group, Inc.

Advisors and Bookrunners:

  • Merril Lynch.
  • DBS Bank.

What are the risks?

  • Any technology service interruption could lead to reputational risk and potential loss of revenue.
  • Singapore is a target for cyber criminals, with increasing cyber-attacks experienced by various organizations.
  • A loss in confidence in the quality of their marketplace could have serious impact on SGX’s competitiveness.

Competitors:

  • London Stock Exchange PLC (LSE).
  • NASDAQ (NDAQ).
  • Hongkong Exchanges and Clearing Ltd (0388).

Management team:

  • Mr Kwa Chong Seng: Chairman.
  • Mr Loh Boon Chye: CEO.
  • Mr Chng Lay Chew: CFO.

The Hatchwork Team

The forecast figures are based on the data of Marketscreener.com, and not from Hatchworks: https://www.marketscreener.com/SINGAPORE-EXCHANGE-LIMITE-6491511/financials/


Legal Disclaimer — This report summary has been generated as a result of Hatchworks’ proprietary company vetting and filtering system. The level of due diligence conducted on investible assets conducted ranges from mediocre to significant, the latter being the case where Hatchworks has explicitly taken strategic positions in. By no means is the information in this file to be relied on as investment advice; this includes Hatchworks’ algorithmic composite score known as ‘Hatchscore’. Hatchworks has not received any compensation for this research. For more information you can reach us at info@hatchworksvc.com. This report is not for distribution in the United States of America. It is closed to U.S citizens. If you are a U.S. citizen, you should delete this report or return to sender.

Oto Suvari

Written by

Research & Development at Hatchworks & Neuchatel Ltd. Heading up the group’s R&D activities for Hatchworks, SPECTRE (www.spectre.ai) and linked projects.

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