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SGX And Biosensors: Probable Suprises This Earnings Season?
Tradeable, Tradeable Ideas | 15 January 2014
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By: Justin Harper
Articles (23) Profile

FY13 earnings season is almost upon us. We look at SGX and Biosensors with hopes that their upcoming earnings release could prompt a share price rally.

A better year ahead for SGX?

Last year was a tough one for the Singapore Exchange (SGX) although earnings and returns on equity (ROE) have been fairly strong due to revenue diversification and cost control. This could lead to a better 2014 so the thinking goes.

Trading volumes have been pretty weak, with the 30-day average market turnover dropping 49 percent since the mid-year peak. This leaves average trading value just slightly higher than it was during the global financial crisis in 2008.

But 2014 could be better for a number of reasons. While a recovery of market volumes could be on the cards. SGX should see non-cash equities revenue driving growth.

These can include earnings from ex-Singapore financial derivatives along with over-the-counter (OTC) clearing. Future rollouts of commodities and energy trading could also ultimately help SGX’s bottom line.

These catalysts have seen Macquarie Research upgrade SGX to outperform. The research house expects trading value to lift off from crisis levels which should be reflected in SGX’s share price.

Another positive for SGX, along with its revenue diversification, is the effect of listing fee hikes which will be phased in and fully noticeable in the second half of the year.

CIMB says expectations for SGX are now very low and the stock remains a good hedge if markets do rally unexpectedly this year. The average uplift expected among brokers is 10.7 percent.

Biosensors could hit the BIG time

Biosensors International Group (BIG) had a new shareholder in November last year in the shape of Chinese investment company, CITIC. This could eventually see the powerful trust look to enhance its investment value through more active participation, possibly even taking the company private.

But for now, BIG’s share price has seen unusual volatility on the back of rising liquidity. Private equity (PE) investors tend to explore various options when their companies have successful franchises but trade below market multiples.

This could mean BIG stays Singapore-listed or relisted on another market, where medical platform firms are better appreciated.

Of course, future success relies on product launches, regulatory approvals and M&A accretion, which can be unpredictable. What is more secure is the cash reserves BIG has – US$512.3 million in net cash (as at 30 September 2013).

Given that its working capital needs are typically in the US$10 million range, there is a low demand for cash at the moment. From a financing point of view, this means that both BIG’s two main private equity investors are very capable of funding a privatisation deal on BIG, especially given the potential of upstreaming the cash hoard.

Credit Suisse notes that about 37 percent of Biosensors’ stock is held by two PE firms (Hony Capital holds around 15.8 percent) and believes the counter’s fundamentals will improve in the long term. The average uplift among analysts is for a 34 percent rise in the share price.

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Justin Harper is an experienced financial journalist who previously worked on the business desks of the Daily Mail, The Telegraph and Financial Times Business in London.

Please click here for more information about this author.

Singapore Exchange  8.530 -0.01 -0.12%   
Business: [FY18 Turnover] Equities & fixed income (48.2%), derivatives (40.2%), mkt data & connectivity (11.6%).

Insight: Jan-19, 1H19 operating revenue increased 5.7% to $... Read More

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