Rising Asian Wealth And ESG Trends Will Fuel Markets

Key Takeaways

• Rising Asian wealth and Singapore's safe-haven status could drive outsized long-term growth in equity volumes, listings, and fee income.
  
• Product innovation, regulatory change, and global partnerships uniquely position SGX to capture new asset classes and expand recurring revenues.
  
• Competitive threats, industry shifts toward private capital and decentralized finance, and overreliance on derivatives risk sustained margin pressure and declining long-term revenue growth for SGX.

Catalysts

An investment holding, engages in the operation of integrated securities and derivatives exchange, related clearing houses, and an electricity market in Singapore.

• While analysts broadly agree that SGX's OTC FX business will see strong double-digit growth and rising EBITDA contribution, the pace of share gains from global trading flows and client onboarding could accelerate beyond expectations as investor dedollarisation picks up, potentially propelling FX and derivatives revenue growth well above current medium-term guidance.
  
• Analyst consensus anticipates secular expansion in cash equities and REIT trading, but rapidly rising Asian household wealth and a persistent global shift towards Singapore as a financial safe haven could fuel an outsized, multi-year surge in equity volumes, fees, and listings, resulting in material upside to revenue and net margin assumptions.
  
• SGX's leading edge in new product development-including imminent regulated crypto perpetual contracts and continuous expansion in ESG/green finance instruments-positions it as the first-mover exchange in Asia to tap emergent high-growth asset classes, which can drive significant incremental fee income and diversified earnings growth over the next decade.
  
• The ongoing transformation of regulatory frameworks in Singapore and across the region, combined with major government-led market liquidity initiatives and an ETF market growing above 30 percent annually, is driving broader international investor participation and could catalyze a step-change in trading volumes and recurring revenues.
  
• The globalization of SGX's partnerships, dual-listing capabilities, and continued investments in scalable digital infrastructure not only provide strong operating leverage for net margins but also uniquely position SGX to capture market share amidst global exchange consolidation and the secular eastward shift of capital flows, lifting long-term earnings power.

Singapore Exchange Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Singapore Exchange compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Singapore Exchange's revenue will grow by 8.4% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 49.7% today to 46.5% in 3 years time.
• The bullish analysts expect earnings to reach SGD 781.0 million (and earnings per share of SGD 0.73) by about August 2028, up from SGD 656.3 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 30.8x on those 2028 earnings, up from 26.1x today. This future PE is greater than the current PE for the SG Capital Markets industry at 16.1x.
• Analysts expect the number of shares outstanding to grow by 0.18% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.01%, as per the Simply Wall St company report.

Singapore Exchange Future Earnings Per Share Growth

Risks

• The accelerating shift of global capital towards the US and China, as mentioned in the text and reflected in SGX's focus on "China and India corridors" and attempts to attract international listings, could continue to marginalize Singapore as a listing destination, resulting in lower listing activity, reduced trading volume, and thus pressured long-term revenue and top-line growth for SGX.
  
• The ongoing rise of private market fundraising and delays in public listings directly threatens SGX's IPO pipeline, and while management points to a "strong pipeline," there is acknowledgement that the regional IPO market is just beginning to recover after a long lull, suggesting persistent risk of fewer new listings and shrinking primary market revenue over the long term.
  
• Increasing competitive pressure from other regional exchanges, especially Hong Kong and rapidly developing Southeast Asian exchanges, may force SGX to respond with more aggressive incentives and fee reductions as noted in their efforts to outpace regional peers in trading volume, ultimately leading to compressed net profit margins over time.
  
• Heavy reliance on derivative products, which contributed 27% of total revenue and are highlighted as core growth drivers, exposes SGX to cyclical swings as seen by comments on "tapering" growth and shifting demand between equity and commodity derivatives
• a downturn in derivatives markets or unfavorable regulatory changes could destabilize earnings and reduce earnings consistency.
  
• Advances in decentralized finance (DeFi), blockchain-based exchanges, and low-cost/zero-fee trading models threaten the long-term relevance and profitability of a traditional exchange like SGX, whose ongoing investment in technology and market structure may subdue revenue growth and accelerate fee compression, further pressuring net margins in a rapidly evolving industry environment.

Valuation

• The assumed bullish price target for Singapore Exchange is SGD18.3, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Singapore Exchange's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of SGD18.3, and the most bearish reporting a price target of just SGD10.3.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be SGD1.7 billion, earnings will come to SGD781.0 million, and it would be trading on a PE ratio of 30.8x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of SGD16.02, the bullish analyst price target of SGD18.3 is 12.5% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.