Hong Kong company reporting season

HKEX profit slumps by a third as market jitters hit turnover

The stock market operator’s third-quarter profit fell 34 per cent to HK$1.54 billion

PUBLISHED : Wednesday, 02 November, 2016, 8:03pm
UPDATED : Wednesday, 02 November, 2016, 10:59pm

Hong Kong Exchanges and Clearing (HKEX), the operator of the city’s stock and futures markets, on Wednesday reported a 34 per cent year-on-year net profit decline for the third quarter.

The drop was attributed to a fall in market turnover, and a high comparison base due to a one-off gain from a property sale last year.

Third-quarter profit stood at HK$1.54 billion, compared with HK$2.33 billion in the same quarter a year earlier, a figure inflated by the sale of a leasehold property for HK$445 million.

Excluding the one-off gain, profit was down 18.5 per cent from HK$1.89 billion a year earlier.

It represents a marginal drop of 0.6 per cent from the second quarter when profit was 1.55 billion, despite the average daily turnover improving by 9 per cent to HK$68.3 billion.

For the first nine months, HKEX’s profit stood at HK$4.53 billion, a decrease of 31 per cent on the year, or 23 per cent excluding last year’s one-off gain. Earnings per share came in at HK$3.75, down 31 per cent annually.

The Shenzhen- Hong Kong Stock Connect may improve sentiment but will not bring much turnover
Louis Tse Ming-kwong, VC Brokerage

“Market sentiment improved in the third quarter of 2016 with the Hang Seng Index reaching a 52-week high during September and headline average [turnover] improving to HK$68.3 billion, 9 per cent above the second quarter of 2016. This was accompanied by an increased level of funds flow through the Shanghai-Hong Kong Stock Connect,” the HKEX said in a statement announcing its results.

“Nevertheless, revenue was 3 per cent lower than the second quarter of 2016, due to seasonal fluctuations in depository, custody and nominee services, which were down by HK$146 million, and reduced derivatives trading relative to the second quarter of 2015”.

Revenue dropped 20 per cent in the first nine months to HK$8.48 billion.

Average daily turnover in the first nine months was HK$67.8 billion, 42 per cent lower than the same period a year earlier. The fall came as investors exercised caution amid a host of uncertainties, including the Chinese economic slowdown, the Brexit referendum vote in the summer and the forthcoming US presidential election.

Louis Tse Ming-kwong, a director of VC Brokerage, said HKEX would continue to be haunted by low market turnover and a lack of large new listings.

“The market is still full of uncertainties. The Shenzhen and Hong Kong stock connect, to be launched soon, may improve sentiment but would not bring much turnover. The outlook for the performance of HKEX would not be optimistic in the fourth quarter,” Tse said.

The company’s profit decline was also driven in part by a 10 per cent decrease in metal contracts trading in its subsidiary London Metal Exchange (LME) in the first three quarters of the year.

It said the LME had temporarily closed its offices due to “structural issues” and relocated its famous trading arena - known as the Ring - to a back-up site, although trading and clearing services have been unaffected by the disruption.

HKEX’s shares finished Wednesday at HK$203, down 1.5 per cent, before the result announcement after market close.

The company’s listing fee income dropped by 27 per cent in the January-September period due to a decrease in the number of new warrants. Operating expenses rose 2 per cent to HK$2.52 billion.