Lower turnover weighs on profit growth at HKEx
Revival in the listings market fails to offset a fall in trading fees in first half, as exchange operator's net income disappoints with 2pc growth
Hong Kong Exchanges and Clearing posted worse-than-expected growth of 2 per cent in net profit for the first half of this year on reduced turnover in stocks and derivatives.
HKEx, which will connect with the Shanghai Stock Exchange from October to allow investors on each side of the border to trade each other's stocks, reported a net profit of HK$2.37 billion for the first six months. Market estimates had been for 5 to 10 per cent growth.
"We saw companies return to the [initial public offering] market to raise funds," Chow Chung-kwong, chairman of HKEx, said in the results statement. "The improving IPO market sentiment, however, did not provide momentum for strong turnover in our secondary market."
Chow was positive on the outlook for HKEx, saying the October through train link-up will turn "an important new page in the further development of the country's capital markets".
He said LME Clear, the new clearing house of London Metal Exchange to be launched in September, will also bring in new revenue. HKEx acquired LME in December 2012 to expand into commodities trading.
HKEx's second-quarter profit rose 1 per cent from the previous quarter to HK$1.19 billion, up 1.7 per cent from the same period a year earlier. An interim dividend of HK$1.83 per share was announced.
The exchange suffered from lower turnover in stocks and derivatives, although it saw an increase in commodity trading fees. This translated into a 3 per cent drop in total trading fees to HK$1.77 billion in the first half from the same period last year.
Average daily turnover on the stock market fell 8 per cent from last year's first half to HK$62.9 billion, while derivatives trading fell 22 per cent to HK$11.3 billion. These drops were partly offset by a 3 per cent rise in LME turnover.
A 171 per cent year-on-year increase in the number of offerings on the main board to 46 during the first half helped boost income from listing fees by 4 per cent to HK$228 million. Total funds raised from listings surged 107 per cent from the same period last year to HK$82.1 billion.
Total HKEx expenses, however, grew 6 per cent year on year to HK$1.42 billion in the first half, including a 9 per cent increase in staff costs to HK$822 million related to the launch of LME Clear.
HKEx also reported an 87 per cent increase in legal costs to HK$103 million because of US class-action lawsuits accusing the LME of monopoly behaviour in aluminium pricing. The management of both exchanges said those lawsuits are without merit.
However, the exchange said it had received HK$54 million in the first half from the liquidators of US lender Lehman Brothers, which will offset part of the HK$160 million provision made in 2008 in relation to the bank's collapse.
Credit Suisse analyst Arjan van Veen said the stock through train should boost prospects in the second half. "Volume has been very strong last week with the average daily turnover at HK$88 billion compared with HK$63 billion year to date," Van Veen said.