SINGAPORE (June 1): OCBC Investment Research is maintaining its “buy” call on Singapore Exchange (SGX), while dropping its fair value to $7.89 from $8.22 previously.

This is to account for the bourse’s current legal tussle with the National Stock Exchange of India (NSE) over its planned launch of new India derivatives products.

Although the research house has kept FY18 earnings forecasts largely intact, it has revised its FY19 earnings downwards to account for a potential hit to the bourse’s derivatives business, which accounted for about 40% of group revenue over 9M18.

In a Friday report, lead analyst Carmen Lee notes that the ongoing case between SGX and NSE has taken a toll on the former’s share price.

“At the high this year, the stock was trading at $8.50, but has since dropped to as low as $7.10, down $1.40 or 16.5%. In terms of market capitalisation, this was stark as some $1.5 billion were wiped off from its market capitalisation,” she notes.

The way Lee sees it, SGX's share price correction has reflected most of the negatives of the legislative outcome, which she believes is not likely to be cleared in the coming weeks.

The correction so far is in fact overdone, as it has more than priced in the potential hit on the bourse’s earnings in the case of an unfavourable outcome, in her view. 

Nonetheless, the analyst continues to like SGX for its stable core earnings, a committed dividend payout of 28 cents per annum, and an implied dividend yield of 3.9% at its share price of $7.24.

As at 2.38pm, shares in SGX are trading 4 cents lower at $7.23, which translates to a FY18F dividend yield of 3.89%.