HKEx expected to report 53pc net profit growth on high turnover, listings and property sales gain

Analysts warn there are still tough time ahead for operator of Hong Kong’s stock exchange in 2016

PUBLISHED : Sunday, 28 February, 2016, 9:00pm
UPDATED : Sunday, 28 February, 2016, 9:00pm

Hong Kong Exchanges and Clearing, the operator of the stock and futures markets, is expected to report strong net profit growth for last year on Wednesday owing to strong market turnover, new listings and property sales.

The consensus of 20 brokers in a Thomson Reuters poll expect HKEx to post a net profit at HK$7.93 billion last year, up 53 per cent on the previous year.

Christopher Cheung Wah-fung, the legislator for the financial services sector, said the exchange would report very strong profit of more than HK$7.5 billion.

“The stock market rally from April to June were so strong that the turnover has reached an average HK$200 billion a day in April. Even during the summer stock rout and the market downturn in the second half of last year, turnover remained high. This will bring the exchange higher trading fee income,” he said.

“The London Metal Exchange also reported strong turnover last year which would bring in good income. The only worry is the exchange’s high running costs,” he said,

The average daily turnover of the local stock market turnover last year stood at a record HK$105.6 billion last year, up 52.08 per cent on 2014.

Louis Tse Ming-kwong, the director of VC Brokerage, also expected the HKEX to report a year-on-year profit growth of between 56 per cent to 60 per cent last year.

“Besides the strong market turnover, both new listings and post-listing fundraising activities were very strong last year which will boost listing fee income at the exchange,” Tse said. “In addition, the HKEx disposed of a property in the third quarter, bringing in yet more money,” he said.

The HKEX also regained the crown as the world’s largest initial public offering market in the period with 138 companies choosing to list in Hong Kong, a rise of 13 per cent on 2014.

Total listing funds raised was HK$261.33 billion, up 12.39 per cent year on year.

Even during the summer stock rout and the market downturn in the second half of last year, turnover remained high.
Christopher Cheung, financial services sector leglislator

Meanwhile, companies already listed on the exchange raised HK$847.66 billion, and increase of 19.36 per cent on a year earlier through Existing share placements, right issues and other secondary market fundraising.

In the third quarter, the exchange reported 81 per cent year-on-year growth in net profit to HK$2.33 billion which was partly due to the sale of a leasehold property for HK$445 million.

However, Cheung said the exchange this year was unlikely to see a repeat of last year’s good numbers after the drop in daily turnover to as low as HK$60 billion this week – a 40 per cent decline from last year’s daily average.

“Overall, sentiment in the first two months of this year was not good. The initial public offering market is also quiet,” Cheung said.

He said the much awaited scheme to connect the Shenzhen and Hong Kong stock markets would be delayed to at least the second half of this year to wait for the market to stabilise. He said since the new China Securities Regulatory Commission chairman Liu Shiyu took up the role only one week ago, it would take some time for the new chairman to be familiar with his job before he would decide to launch any new cross-border scheme.

“The CSRC is unlikely to introduce any big reform plan such as the Hong Kong and Shenzhen stock connect in the near future. And without any new plans to stimulate stock market sentiment, HKEx is unlikely to see a big boost in profit in 2016,” Cheung said.

Shares of HKEx closed at HK$173.30 on Friday, against their one-year low of HK$160.10 and down from its peak of HK$311.40 in April last year.