Is This a Possible Avenue of Growth for Singapore Exchange?

SGX logo singapore exchange

Singapore Exchange (SGX: S68) recently proposed a new regulatory framework for companies looking at a secondary listing in Singapore; this might potentially mean more business for the stock exchange operator.

Currently, if a company wants to have a secondary listing here, it will have to fulfill the listing regulations of both its primary market and that of Singapore Exchange.

New rules

With the new regulation, Singapore Exchange will allow companies currently listed in any of the 23 “Developed markets” (as classified by MSCI and FTSE) to list in Singapore without having to meet any additional local listing regulations here. Some of the 23 developed markets (of which Singapore is one) include the United States, Canada, United Kingdom, Switzerland, Australia, Hong Kong, and Japan, amongst others.

Singapore Exchange hopes that a relaxation on the regulatory front would attract more companies from the developed markets to consider Singapore for a second listing. The idea is that investors should be well protected from the regulatory framework in the other 22 developed markets and there is no real need for Singapore Exchange to implement its own additional rules.

For companies that have primary listings outside of the 23 developed markets, the proposed exemptions would not apply. Perhaps, the listing of S-Chips (China-based companies listed in Singapore) here and the subsequent problems they’ve caused (which include frauds and accounting irregularities) has caused Singapore Exchange to be a little more mindful of the quality of companies that are allowed to list in Singapore.

To help investors better differentiate between primary- and secondary-listed companies in Singapore’s share market, the company will “clearly segregate between these companies when their stock information is displayed on [Singapore Exchange’s] website.”

Growth, or lack thereof

This might be a potential growth engine for Singapore Exchange – a company that needs to find ways to grow – if it does result in more listings and subsequently, more trading volume. Despite having a high quality business – it has one of the best net profit margins amongst the 30 constituents of the Straits Times Index (SGX: ^STI) at 45% in the latest quarter – it has been struggling to grow its top-line over the past few years; revenue came in at S$636 million and S$561 million in FY2010 (the financial year ended 30 June 2010) and in the last 12 months, respectively.

The company has seen its share price fluctuate around the S$7.00 range since its failed merger with the Australia Stock Exchange back in 2011. At its current price of S$6.91, Singapore Exchange is currently valued at 22.3 times trailing earnings and 8.8 times its book value; those aren’t low valuations. However, the company also offers a historical dividend yield of 4.0%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.