SGX

SGX: (S$7.50) New structure to address challenges ahead
SGX is reorganising its business structure as it seeks to be an investment gateway to Asia.

The move will place greater emphasis on product lines over operational functions from the start of 2016 with the integration of its sales and product teams to form three vertical businesses - equity and fixed income, derivatives, and market data & connectivity.

Operational functions that are currently run by the sales and listings unit will now be split into the newly created businesses thus helping to reinforce the exchange’s priorities across its product offerings.

The new structure will also consolidate its international offices in China, Hong Kong, India, Japan, and UK into a new single unit called the Membership & International Coverage unit. The unit will develop specific country strategies to drive adoption of its products and services on an international scale.

The SGX will be hoping that the new, flatter organisational structure will help it take on the challenge of improving market liquidity and attract listings after Nov’s operating statistics pointed to a declining trend of securities turnover (-13% y/y) and daily traded volumes (-13% y/y).

In line with the weaker operating statistics as well as listing figures, a foreign broker downgraded the counter to Neutral from Outperformance with a TP of $8 from $10 as it feels that the weak equity market volumes would weigh on its overall financial performance given that equities account for 30% of the exchange’s topline.

Upside catalysts include better market trading volumes, IPOs, secondary capital raisings, and the success of new product launches such as forex products.

The counter is currently trading at 22.2x forward P/E. The street is relatively neutral on the counter with 8 Buy, 8 Hold, and 3 Sell ratings with a consensus TP of $8.04.