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Broker's take: Maybank initiates coverage on SGX, gives "buy" rating

ANALYSTS at Maybank Kim Eng Research have initiated coverage of the Singapore Exchange (SGX) with a "buy" rating and a target price of S$8.30.

They see SGX as a "good proxy to ride the cyclical upturn", with scope for earnings to improve from higher market capitalisation from a healthy initial public offering (IPO) pipeline, strong momentum of securities daily average traded value, and derivatives daily average volume growth to sustain on the back of higher open interest, among other factors.

However, analysts note that structural issues still loom. Low turnover velocity, low valuations of companies and lack of bigger IPO listings are structural issues for its equities business.

"We think SGX may defend and/or gain market share for its contracts from increased competition, which will result in lower fee per contract. Management addressed some of these issues with various initiatives, although their effectiveness remains to be seen as more time is needed to assess their impact," they wrote in the report.

Other downside risks for SGX include new technologies and new financial technology competitors, which may potentially disrupt the relevance of SGX's platform, according to the report. Despite SGX being a quasi-monopoly with relatively high barriers to entry, it still faces competition from other regional and global bourses as well as other new entrants.

The analysts added that there will be a need to create new or enhanced products to retain and attract customers.