HKEx slumps after analysts cut target price

PUBLISHED : Tuesday, 18 November, 2008, 12:00am
UPDATED : Tuesday, 18 November, 2008, 12:00am

Shares of Hong Kong Exchanges and Clearing, the operator of the city's bourse, dropped as much as 9.62 per cent yesterday after Morgan Stanley halved its target price on the stock to reflect a worsening investment environment and thinner trading volumes.

HKEx shares closed 7.56 per cent lower at HK$60.55, the second worst performing blue chip following the 11.3 per cent loss by mobile-handset maker Foxconn International Holdings.

Morgan Stanley slashed its target to HK$38 from HK$75. The stock might only be worth HK$15 if turnover volume weakened to HK$15 billion a day, it said.

'We are revising our numbers to reflect the likely weakness in turnover in 2009. We are now assuming average daily turnover of HK$47 billion a day in 2009, [which is down from previous estimate of HK$80 billion],' said a Morgan Stanley report released yesterday.

The exchange's income, largely driven by fees, has been hit by slumping transactions and share offerings as investors stood on the sidelines amid the gloomy economic outlook.

Daily turnover over the past 10 days averaged HK$50 billion, compared with HK$165 billion when trading peaked a year ago. The stock surged to a record of HK$249 in October.

Turnover sank to HK$39.84 billion yesterday, the lowest daily level since March last year.

'Weak market activity will likely crimp other sources of revenue and costs are likely to be flat - causing continued move up in cost income ratio. This drives the sharp downward revision in earnings,' Morgan Stanley said.

HKEx's income and net profit are expected to plunge 31.6 per cent and 37 per cent to HK$4.9 billion and HK$3 billion respectively next year because of lower investment returns and information and listing fees, Morgan Stanley said.

The exchange was trading at about 11 times forecast earnings next year, above counterparts in other developed markets that were trading at below 10 times, the Morgan Stanley report said.

Meanwhile, Credit Suisse maintained an 'underperform' rating on HKEx, as it also worried that trading volumes would resume a downward trend in the coming two quarters.

It cut the target price by 27.7 per cent to HK$65 from HK$90 after the city's bourse operator posted a second successive drop in quarterly profit.

HKEx's net income declined 43 per cent to HK$959.65 million in the third quarter from HK$1.68 billion a year earlier.