SGX falls 5.8% as initial MAS review group proposals dampen earlier optimism; Citi downgrades stock to ‘sell’

SHARES of Singapore Exchange (SGX) fell as much as 6.3 per cent or S$0.85 to S$12.62 on Friday (Feb 14) as investors were less than impressed with the initial proposals to revive the equities market.

The counter closed at S$12.69, down S$0.78, or 5.8 per cent, on turnover of 7.2 million shares.

Citi Research downgraded its call on the SGX to a “sell” on Friday, as it expects the recent optimism priced into the counter’s valuation to unwind. It also lowered the price target of the stock to S$11.90.

The bank’s downgrade come a day after the equities market review group of the Monetary Authority of Singapore (MAS) announced its first set of measures.

The review group had proposed introducing tax incentives to attract enterprises and fund managers to list in Singapore. It also aims to encourage the launch and growth of funds with substantial investment in local equities.

The first set of measures has already been submitted to Prime Minister and Minister for Finance Lawrence Wong. A fuller update on these measures will come on Feb 21.

The group will continue to work on its next set of measures to foster the longer-term development and sustainable growth of Singapore’s equities market, and provide more details in the second half of this year.

Citi analyst Tan Yong Hong said that although the research house said previously that SGX’s 12-month forward price-to-earnings multiple of 23.4 times reflected optimism over the recommendations of the review group, commentaries that advised against investments by GIC and the Central Provident Fund in domestic equities “likely disappointed markets”.

Second Minister for Finance Chee Hong Tat, who chairs the review group, said that “GIC’s mission is to preserve and enhance the international purchasing power of Singapore’s reserves”.

He said the sovereign wealth fund should thus not be required to have a specific allocation to local equities if such investments could result in lower overall returns, as doing so would not be in the best interests of Singapore and Singaporeans.

Analysts yesterday after the review group’s proposal also said that tax incentives likely won’t address fundamental issues facing the Singapore market, as decisions behind where a company chooses to list will include trading liquidity, valuations.

Citi’s Tan said in his research note that assuming SGX could de-rate to an average price-to-earnings multiple of 21 times, that implies a potential 8 per cent downside risk to its current share price.

This would entail the counter giving up “much of (its) gains” since announcing its results for the first half.

Citi’s revised target price implies a 21 times 12-month forward price-to-earnings multiple – roughly at the mean level – but this is ahead of the 19 times trough in May last year, when the research house upgraded the counter, it said.

The bourse operator posted a net profit of S$340 million for the first half ended December, up 20.7 per cent from S$281.6 million in the previous corresponding period.

Earnings per share (EPS) stood at S$0.318, up from S$0.263 in the year-ago period.

SGX’s board of directors declared an interim quarterly dividend of S$0.09 a share, bringing total dividends in the first half to S$0.18 a share.