Silver Point

Thomas J. Monaco

Independent Insight Provider

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Equity Bottom-Up

*Solid Quarter: Hong Kong Exchanges &amp; Clearing (388.HK) [HKEX] reported 3Q20 earnings of HKD 3.3 bn, improving HKD 376 mn (12.7%) linked quarter. Results were even more impressive when we exclude investment income (declined HKD 206 mn or 23.2% linked quarter) – increasing HKD 582 mn (28.0%) to HKD 2.7 bn; and** Peak Value: So much value has been derived on hope for the shares of HKEx, which included that on: southbound connect, futures markets,  structural reforms, and the change in CEO. As such, we have witnessed HKEx’s 2020 share performance of 44.4% that has resulted in a global exchange leading valuation of 10.4x P/BV.

*Solid Quarter: Hong Kong Exchanges &amp; Clearing (388.HK) [HKEX] reported 3Q20 earnings of HKD 3.3 bn, improving HKD 376 mn (12.7%) linked quarter. Results were even more impressive when we exclude investment income (declined HKD 206 mn or 23.2% linked quarter) – increasing HKD 582 mn (28.0%) to HKD 2.7 bn; and** Peak Value: So much value has been derived on hope for the shares of HKEx, which included that on: southbound connect, futures markets,  structural reforms, and the change in CEO. As such, we have witnessed HKEx’s 2020 share performance of 44.4% that has resulted in a global exchange leading valuation of 10.4x P/BV.

Hong Kong Exchanges & Clearing – Strong Quarter, But Can It Continue?

Financials & FinTech research, Galliano’s Financials Research

Victor Galliano

Financials & FinTech research

Financials & FinTech, EM & Developed Markets

Galliano’s Financials Research

Galliano's Financials Research provides fundamental research in Emerging Markets financials, including FinTech, as well as financials in select Developed Markets.

The investment style applied is generally value oriented, although Growth At Reasonable Price (GARP) strategies can also be used where appropriate. 

Our investment research approach aim is often contrarian, looking to capitalise on overly sceptical or optimistic consensus views. In terms of valuation techniques, the focus is on PBV ratio to ROE, PE multiples and dividend yield, as well as the application of PEG ratios and, where appropriate, Sum of the Parts (SOTP) valuations.

<ul>
<li>
<a href="https://www.smartkarma.com/entities/singapore-exchange-ltd" target="_blank" data-smartkarma-citation="entities:1047:1" rel="noopener">SGX (SGX SP)</a> has seen lacklustre share price performance relative to other global exchanges over the last six months</li>
<li>This is in part due to lingering concerns regarding SGX’s largely reduced MSCI indexing agreement</li>
<li>To help offset the reduced MSCI agreement, SGX signed a strategic partnership with FTSE Russell in August; recently released SGX market statistics to September reveal encouraging datapoints for equity index derivatives</li>
<li>SGX is also making focused acquisitions in the Data and Information space, as well as establishing itself as a leading currency futures exchange and, in commodities, it is the leading iron ore derivatives market globally</li>
<li>SGX management is focused on cost control, which has served to deliver a 5 percentage points increase in EBITDA margin from FY2016 to FY2020, and contributed to SGX achieving an ROE of 40% in FY2020</li>
<li>We see SGX as an attractive share, with consensus estimates too bearish on SGX’s earnings growth potential, in our view, which should support its re-rating</li>
<li>Risks to our view include a worse than expected hit to equity derivative volumes from the reduced MSCI contract in FY 2021, as well as increased competition from other Asian exchanges for currency futures and commodities trading</li>
</ul>



SGX (SGX SP) has seen lacklustre share price performance relative to other global exchanges over the last six months
This is in part due to lingering concerns regarding SGX’s largely reduced MSCI indexing agreement
To help offset the reduced MSCI agreement, SGX signed a strategic partnership with FTSE Russell in August; recently released SGX market statistics to September reveal encouraging datapoints for equity index derivatives
SGX is also making focused acquisitions in the Data and Information space, as well as establishing itself as a leading currency futures exchange and, in commodities, it is the leading iron ore derivatives market globally
SGX management is focused on cost control, which has served to deliver a 5 percentage points increase in EBITDA margin from FY2016 to FY2020, and contributed to SGX achieving an ROE of 40% in FY2020
We see SGX as an attractive share, with consensus estimates too bearish on SGX’s earnings growth potential, in our view, which should support its re-rating
Risks to our view include a worse than expected hit to equity derivative volumes from the reduced MSCI contract in FY 2021, as well as increased competition from other Asian exchanges for currency futures and commodities trading


SGX (SGX SP): Market Under-Rates Its Growth Potential

*Weaker Futures Activity Continues: ASX Limited (ASX.AU) [ASX] remains a among the better listed exchanges globally, earnings fundamentals are likely to remain under pressure for the foreseeable future. During the September 2020 update, stronger capital markets activity was a positive surprise and velocity is tracking well. However, the weaker trend in futures activity continues its downward trend whilst costs continue to rise as ASX continues to invest in technology; and*Expect Consensus To Take Hatchet To EPS:  New revenue initiatives are also unlikely to add materially to growth in FY 2021. In our view, consensus forecasts remain beyond what is rational and significant EPS downgrades are inevitable.  In light of these headwinds, it’s pretty difficult to justify a P/E of 38x FY 2022 consensus forecasts.

*Weaker Futures Activity Continues: ASX Limited (ASX.AU) [ASX] remains a among the better listed exchanges globally, earnings fundamentals are likely to remain under pressure for the foreseeable future. During the September 2020 update, stronger capital markets activity was a positive surprise and velocity is tracking well. However, the weaker trend in futures activity continues its downward trend whilst costs continue to rise as ASX continues to invest in technology; and*Expect Consensus To Take Hatchet To EPS:  New revenue initiatives are also unlikely to add materially to growth in FY 2021. In our view, consensus forecasts remain beyond what is rational and significant EPS downgrades are inevitable.  In light of these headwinds, it’s pretty difficult to justify a P/E of 38x FY 2022 consensus forecasts.

ASX Limited – Softening Trends Continue

<ul>
<li>
Early Retirement: Hong Kong Exchanges &amp; Clearing (388.HK) [HKEx] announced that CEO Charles Li has informed the Board of Directors of his early retirement – following the announcement earlier in  the year that he would not seek re-appointment after October 2021. CEO Li will remain on as CEO and an ex-officio member of the Board until the end of 2020, and become a senior advisor to the Board for six months from January 1st; and </li>
<li>
Focus, Focus, Focus: This is a management team, who all too often, gets distracted and fails to meet both near and long-term targets. That outrageous London Stock Exchange bid of USD 39 bn alone should have cost Charles Li his CEO title. Nevertheless, we are hopeful that HKEx has learned that this failure/distraction has caused an enormous loss of market confidence. </li>
</ul>



Early Retirement: Hong Kong Exchanges &amp; Clearing (388.HK) [HKEx] announced that CEO Charles Li has informed the Board of Directors of his early retirement – following the announcement earlier in  the year that he would not seek re-appointment after October 2021. CEO Li will remain on as CEO and an ex-officio member of the Board until the end of 2020, and become a senior advisor to the Board for six months from January 1st; and 

Focus, Focus, Focus: This is a management team, who all too often, gets distracted and fails to meet both near and long-term targets. That outrageous London Stock Exchange bid of USD 39 bn alone should have cost Charles Li his CEO title. Nevertheless, we are hopeful that HKEx has learned that this failure/distraction has caused an enormous loss of market confidence. 


Hong Kong Exchanges & Clearing – Addition By Subtraction

*Monthly Stats Decent:Singapore Exchange (SGX.SP) [SGX] recently reported its August 2020 monthly market metrics. SGX’s market volumes increased 11% MOM (SGX Mainboard volumes increased 13% MOM), whist velocity was higher than previous months averages at 56%. That said, market volumes have begun to normalize after a strong rally post the COVID-19 valuation trough; *Taiwan A Standout: While MSCI Taiwan contracts declined 19% MOM, volumes on the new FTSE Taiwan Index did exhibit an increase of 3.3x - from 82 thousand contracts during July to 352 contracts this month. SGX accounted for 99.5% of the notional traded offshore on the MSCI Taiwan. To put this in perspective, the FTSE Taiwan contracts traded were 20% of the total Taiwan contracts traded versus just 5% in July; and   * Deals Wave of Future: SGX is hopeful to achieve synergies from newly acquired subsidiaries, such as its additional 80% stake in BidFX,a cloud-based on-line F/X trading platform. SGX is going to have to be a bit more creative to generate revenue with the Hong Kong Exchanges &amp; Clearing (388.HK) likely to be directly competing with the A50 – on of SGX’s bread and butter products.

*Monthly Stats Decent:Singapore Exchange (SGX.SP) [SGX] recently reported its August 2020 monthly market metrics. SGX’s market volumes increased 11% MOM (SGX Mainboard volumes increased 13% MOM), whist velocity was higher than previous months averages at 56%. That said, market volumes have begun to normalize after a strong rally post the COVID-19 valuation trough; *Taiwan A Standout: While MSCI Taiwan contracts declined 19% MOM, volumes on the new FTSE Taiwan Index did exhibit an increase of 3.3x - from 82 thousand contracts during July to 352 contracts this month. SGX accounted for 99.5% of the notional traded offshore on the MSCI Taiwan. To put this in perspective, the FTSE Taiwan contracts traded were 20% of the total Taiwan contracts traded versus just 5% in July; and   * Deals Wave of Future: SGX is hopeful to achieve synergies from newly acquired subsidiaries, such as its additional 80% stake in BidFX,a cloud-based on-line F/X trading platform. SGX is going to have to be a bit more creative to generate revenue with the Hong Kong Exchanges &amp; Clearing (388.HK) likely to be directly competing with the A50 – on of SGX’s bread and butter products. 

Singapore Exchange – Taiwan A Standout In August

United Kingdom

London Stock Exchange Group plc is the United Kingdom's primary stock exchange. The LSE provides markets that facilitate the raising of capital and the trading of corporate securities, access to a trading environment, as well as real-time pricing and reference information services worldwide.  Market coverage includes equities, derivatives and fixed-interest securities.

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Hong Kong Exchanges & Clearing – Strong Quarter, But Can It Continue?

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Thomas J. Monaco

SGX (SGX SP): Market Under-Rates Its Growth Potential

The market is too bearish on SGX's revenue and earnings outlook, and we believe that the recently published market statistics for September show...

Victor Galliano

ASX Limited – Softening Trends Continue

*Weaker Futures Activity Continues: ASX Limited (ASX.AU) [ASX] remains a among the better listed exchanges globally, earnings fundamentals are...

Thomas J. Monaco

Hong Kong Exchanges & Clearing – Addition By Subtraction

Early Retirement: Hong Kong Exchanges & Clearing (388.HK) [HKEx] announced that CEO Charles Li has informed the Board of Directors of his...

Thomas J. Monaco

Singapore Exchange – Taiwan A Standout In August

*Monthly Stats Decent: Singapore Exchange (SGX.SP) [SGX] recently reported its August 2020 monthly market metrics. SGX’s market volumes increased...

Thomas J. Monaco

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