Singapore Exchange

Singapore Exchange > Buy

OCBC Investment Research, June 1

June 1 close: S$7.23

Fair value: S$7.89

IN THE last few months, the National Stock Exchange of India (NSE) has been battling with the Singapore Exchange (SGX) over Indian derivatives. This has taken a toll on SGX's share price. At the high this year, the stock was trading at S$8.50, but has since dropped to as low as S$7.10 – down S$1.40 or 16.5 per cent.

We are of the view that the correction is overdone and has more than priced in the potential hit on earnings.

We are keeping our FY18 earnings largely intact, but have revised our FY19 earnings to take into account the potential hit to its derivatives business. At the last result (for 9-month FY18), derivatives accounted for about 40 per cent of group revenue (versus the average of 30 per cent from FY10-17). For the same period, SGX delivered net earnings of S$292 million to S$349 million or an average of S$325 million per year.

With fairly stable core earnings, a committed dividend payout of 28 cents per year, and at the current price of S$7.24 as at end-May 2018, this means a good dividend yield of 3.9 per cent from a debt-free company.

With the adjustment to our FY19 forecasts, and using the same valuation of 23 times earnings, our fair value estimate drops from S$8.22 to S$7.89.