SGX shares opens near 7% lower on Nifty futures exit news

SGX shares opens near 7% lower on Nifty futures exit news

By: 
Michelle Zhu
12/02/18, 10:55 am

SINGAPORE (Feb 12): Shares in Singapore Exchange (SGX) opened at $7.40 -- nearly 7% lower than its Friday closing price of $7.89 -- following news that the Indian stock exchanges are intending to restrict the usage of Indian indices and market data by foreign exchanges, indices and data providers.   

The move will prevent SGX from continuing to offer derivatives based on India’s benchmark Nifty 50.

To recap, Singapore’s bourse on Sunday issued a press release in response announcing that it would take steps to maintain market continuity and develop other complementary products in light of the recent development.  

See: Singapore Exchange seeks to defuse tensions over National Stock Exchange of India in futures dispute 

Global investment bank Jefferies issued a note this morning saying it does not anticipate any immediate change on dividends as it awaits the launch of new India-access products by SGX.

The research house is maintaining its “buy” call on the stock with a target price of $8 while recommending investors to observe the announcement's impact on the MSCI, and whether any such changes would affect trading of related products on SGX in turn.  

"Apart from impact on clearing fees due to lower turnover, interest income from deposited collateral will be reduced due to lower open interest. There may be a second order impact on trading of INR futures and benefits of product cross-margins," explains analyst Krishna Guha of Jefferies Singapore.  

"On the flip side, SGX will save on licensing fees, royalties and other variable costs linked to SGX Nifty products. Suffice to say that there are ample puts and takes which impact financial metrics. In absence of launch of other complementary products, we estimate earnings will be impacted mid to high single digits in medium-term," he adds.  

Meanwhile, OCBC analyst Carmen Lee says she expects the news to dampen SGX’s share price in the near-term.

The research house has maintained its “hold” call on the stock with a fair value estimate of $8.16 which is below the 12-month average consensus target price of $8.48.

“The SGX Nifty 50 Index Futures accounted for about 11.5% of SGX’s derivatives volume in 2QFY18 and is the third largest in terms of volume, after the SGX FTSE China A50 Index Futures and the Japan Nikkei 225 Index Futures. We expect this news to result in a knee-jerk reaction on SGX’s shares this morning and drag the price below Friday’s closing price of $7.89,” says Lee.

DBS has similarly acknowledged a possible downside risk to SGX's earnings trajectory from FY19F in the scenario that nothing is done to compensate for the loss of contributions post the announcement. After taking out Nifty and MSCI India from the bourse's financials, FY19F net profit is estimated to see a 7% decline, which would subsequently result in a 6% decline in its fair value estimate. 

The research house has nonetheless maintained its "buy" rating on the stock with a target price of $8.90, which is based on the dividend discount model, implying 21 times FY19F P/E. 

This comes on the belief that its stock price should still be supported by its stable and sustainable dividend yield of 4%, along with the bourse's efforts to drive market liquidity and new product initiatives which DBS says should bear fruit in the coming years -- including the recently-announced trading link with Bursa Malaysia. 

See: Malaysia and Singapore to set up stock market trading link

As at 10.52am, shares in SGX are trading 6.7% lower at $7.36 or 24 times FY18 earnings.

US sanctions on Huawei could backfire

SINGAPORE (May 27): It was only to have been expected. After nearly a year of pressure that failed to stop Huawei Technologies Co’s expansion -- especially in the rollout of the next generation 5G wireless network globally -- in its tracks, US President Donald Trump signed an executive order effectively barring American firms from doing business with the Chinese telecommunications equipment company. The inclusion of Huawei on the US Department of Commerce’s Bureau of Industry and Security’s (BIS) Entity List means that companies would need to apply for a waiver to supply goods with 25....
Read More >>

Annica chairman Ong quits just as $33 mil goes missing at his law firm JLC

SINGAPORE (May 27): Jeffrey Ong, managing partner of law firm JLC Advisors, may have given instructions to pay out a sum of $33.2 million held in escrow by his firm for a client, Allied Technologies. According to Allied’s statement filed with Singapore Exchange on May 23, the payment may have been “unauthorised”, citing a letter it received from JLC on May 22. Allied’s statement did not specify who the payment was made to. Ong also abruptly resigned as non-executive chairman of Annica Holdings on May 20. In a May 22 filing with SGX, Annica CEO Sandra Liz Hon Ai Ling said Ong resigne....
Read More >>

SGX RegCo sees targeted approach in enforcement, more powerful market discipline

SINGAPORE (May 27): Tan Boon Gin, CEO of stock exchange regulator Singapore Exchange Regulation, says the market can expect a stronger regulatory presence. “You will see a series of enforcement cases coming up quite soon,” he tells The Edge Singapore. Tan’s assertion comes amid significant changes in the market as sentiment remains lacklustre and investors’ expectations change. The local stock market has gone through significant upheaval, not least because of the penny stock crash in 2013 that wiped out some $8 billion in value from the market. The event dented investor sentiment, a....
Read More >>