HKEX profit drops more than expected

The bourse said it will trim new projects and hire fewer people.

PUBLISHED : Wednesday, 11 May, 2016, 7:04pm
UPDATED : Wednesday, 11 May, 2016, 7:04pm

Hong Kong Exchanges and Clearing will slow “less critical projects” and hire fewer staff after reporting a worse-than-expected net profit decline of 9 per cent in the first quarter after turnover fell and running costs increased.

The bourse, which runs the local stock and futures market and owns the London Metal Exchange, said net profit for the period was HK$1.43 billion. Market expectations were for a 4 per cent drop.

“In response to continued uncertainty in market conditions the group is adopting a prudent approach to expenditure control as we move into the second quarter of 2016,” the HKEX said in its result statement. “While the group continues to move forward with strategic initiatives a more cautious approach is being taken in the timing of less critical projects,”

The bourse said this would include “a means to manage capital expenditure” and “a more modest increase in headcount” this year.

Ben Kwong Man-bun, a director of KGI Asia, said it made sense for HKEX to cut costs as turnover has been comparitively low this year and that has sliced into income.

“The HKEX will continue to expand in stock connect and to promote new listings as these would bring in new income,” he said. “But the bourse is likely to cut down on back-office hirings.”

Stock connect allows cross-border trade between the Hong Kong and Shanghai exchanges.

The profit decline was due to lower turnover in stocks and commodities which reduced trading fees by 12 per cent year-on-year during the first three months of the year.

Average daily turnover on the Hong Kong stock market in the quarter fell an annual 23 per cent while metal trading at the LME decreased 9 per cent.

“The first quarter results reflect generally subdued market conditions, both locally and globally,” the exchange said. “Investor sentiment remained bearish during the first quarter of 2016, which has been reflected in overall trading activity and the group’s overall revenue.”

The profit decline was also because an HK$89 million exceptional gain last year was not repeated.

Excluding this, first quarter profit fell 3.63 per cent.

The disappointing result was also due to a 19 per cent increase in operating expenses to HK$854 million due to pay rises for staff and an increase in employee costs.

That was offset by a 12 per cent rise in listing fee income.

After the result was announced the HKEX share price fell almost 1 per cent but later rebounded. It closed at HK$185.8, unchanged from Tuesday.