Brokers' take: SPACs will likely boost SGX's position as key financial hub in Asia

THE Singapore Exchange (SGX) S68 should gain from an overall higher valuation of the Singapore market, due to the listing of tech-related and new economy companies through special purpose acquisition companies (SPACs), CGS-CIMB said.

The SPACs, which are blank-cheque companies that are listed to acquire and take a private company public, will likely provide "a much-needed boost" in investor interest and trading liquidity for the bourse operator, which has faced a slowdown in listings in recent years.

CGS-CIMB upgraded its call on the bourse operator to "add" from "hold". It maintained its target price of S$10.40 on the counter, which is pegged to 25 times the brokerage's estimates for SGX's 2022 earnings.

The research team noted that SGX's share price has retreated around 16 per cent since it released its full-year results in August, which offers a "palatable entry".

Meanwhile, RHB lowered its target price on SGX to S$10.30 from S$11.10 - pegged to 23 times its estimates for SGX's FY2022 earnings - to account for near-term elevated costs and lower-than-expected trading volumes. The brokerage maintained its "neutral" call on the counter.

Shares of SGX closed at S$9.44 on Friday, down by S$0.01 or 0.11 per cent.

CGS-CIMB said the shorter listing timelines of SPACs would likely attract more listing interest, which can subsequently attract stronger trading volumes on the bourse.

The research team noted that SGX's SPAC listing requirements are largely aligned with the US's and are less rigid than Hong Kong's, which should "prove advantageous" for SGX in the medium term as a stock exchange with multi-product offerings, particularly against regional peer Hong Kong Exchange.

Although SPAC listings will likely not contribute significantly to SGX's equity listing revenues - listings accounted for around 3 per cent of SGX's total revenue in FY2021 - it should help make up for the gap in product offerings from the expiry of SGX's licensing agreement with MSCI earlier this year.

SPACs could also play a role in granting deep-tech startups access to capital and continuous funding for the long gestation period needed for their products and solutions, amid a national effort to boost research, innovation and enterprise in the Republic, CGS-CIMB said.

As for RHB, analyst Shekhar Jaiswal noted that SGX may face higher near-term operating expenses from the consolidation of various acquisitions, and its securities trading volumes for FY2022 are also trending below forecasts.

He nonetheless remains positive on SGX's long-term growth prospects from its latest acquisitions, and potential pipeline of exchange-traded fund, real estate investment trust and SPAC listings.

Jaiswal cut FY2022 earnings estimates for SGX by 4 per cent, but also raised FY2023 and FY2024 earnings estimates by 5 per cent each, to reflect a more positive long-term growth outlook.

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