An expensive acquisition and poor market turnover contributed to Hong Kong Exchanges and Clearing's 20 per cent drop in net profit last year. Analysts say the outlook for the operator of the stock and futures markets is not optimistic.
The profit figure was at the lowest end of market estimates, leading to HKEx's shares falling to HK$135.60 - down 1.6 per cent - in afternoon trade before bouncing back to close unchanged on the day at HK$137.80.
"While the global economic outlook remains challenging, we believe we are well positioned to weather any storms that might come our way," chairman Chow Chung-kong said.
HKEx said net profit fell to HK$4.08 billion from HK$5.09 billion in 2011. This was because of lower market turnover, fewer initial public offerings and the £1.39 billion (HK$16.3 billion) takeover of the London Metal Exchange.
HKEx kept its 90 per cent payout policy with a final dividend of HK$1.46 per share.
The average daily turnover on the stock exchange fell 23 per cent to HK$53.9 billion last year, while funds raised from initial public offerings plunged 65 per cent to HK$90 billion. Trading fees and listing income are major sources of the HKEx's revenue.
The profit drop was also due to the HK$138 million in costs related to the acquisition of the LME. Depreciation and amortisation cost rose 75 per cent to HK$158 million due to goodwill of the LME and other exchange trading platforms.
The deal also led the exchange to offer new shares and take loans that left it with a debt-equity ratio of 37 per cent.
Charles Li Xiaojia, the chief executive of the HKEx, said it had no fundraising need this year and was comfortable with the current debt level.
Li said depreciation and amortisation cost would continue to rise but added LME had already contributed HK$76 million in revenue to the HKEx in the 26 days since the acquisition was completed on December 6.
He said the LME, the world's largest metal exchange, would be a future force of profit growth for the HKEx. The takeover allowed the HKEx to move quickly into commodities trading and helped attract mainland investors to use it as a springboard to the international commodities market.
"The LME acquisition is a way to invest in our future. It allows the HKEx to diversify our business," he said.
Li said average daily turnover had improved since last month.
Kenny Lee Yiu-sun, the chief executive of First China Securities, said the HKEx's profit outlook remained poor. "While the commodities trading of the LME and the launch of yuan products would help improve profits for the long term, they are not going to bring much this year," he said.