Hong Kong company reporting season

HKEX likely to report 24 pc drop in net profit for 2016, according to analyst poll

PUBLISHED : Thursday, 23 February, 2017, 1:46pm
UPDATED : Thursday, 23 February, 2017, 10:50pm

Hong Kong Exchanges and Clearing, the operator of the stock and futures markets in Hong Kong, is expected to report a 24.2 per cent profit decline for 2016 on Monday as lower stock market turnover hurts its income.

The company is expected to report HK$6 billion (US$770 million) in net profit for the year, compared with HK$7.96 billion in 2015, according to consensus profit forecasts among analysts polled by Thomson Reuters.

Earning per share is expected to be HK$4.99 last year, down 25.1 per cent from 2015.

“It is well expected the HKEX will have a profit decline last year. Both the stock market turnover and fund raised by initial public offerings both dropped to a lower level last year than 2015. The trading fee income and the listing fees from IPOs would definitely be lower,” said Louis Tse Ming-kwong, a director of VC Brokerage.

“The London Metal Exchange may bring in stable trading fee income to the exchange while the stock exchange has also carried out some cost control measures, but this would still be unable to lift the exchange profit. I believe HKEX’s net profit will only amount to HK$ 6 billion to HK$6.2 billion last year,” Tse said.

The exchange earns money by charging trading and clearing fees on stock transactions, so its income relies heavily on market turnover. The average daily turnover last year stood at HK$66.9 billion, down 37 per cent from HK$105.6 billion in 2015.

Joseph Tong Tang, chairman of Morton Securities, said the turnover was lower last year as a result of market uncertainties from the China economic slowdown, the Brexit vote in June and surprise election of US President Donald Trump during November’s election.

“The stock connect between Hong Kong and Shenzhen has been postponed from the end of 2015 to December of 2016. But even after the new cross border scheme was launched, the southbound turnover did not take up until February,” Tong said.

The southbound turnover between mainland exchanges and Hong Kong began to pick up in February following the resumption of trading after the Lunar New Year holiday, with the average daily turnover increased to HK$81 billion. Mainland trading represented 10.3 per cent of all trades.

The rising turnover will be reflected in the first quarter result and not the full year result for 2016 to be announced on Monday. However, HKEX’s share price has risen 11 per cent in the past two months.

“Continued strength in trading volumes poses upside risk but pricing in a revenue pick-up from the bond connect over the next two to three years appears pre-mature, even if it is launched right away,” said Harsh Modi, an analyst of JPMorgan in a research report.

Modi expects HKEX to report a 2016 net profit of HK$6 billion. However profit should remain on an uptrend, rising to HK$6.5 billion in 2017 and HK$6.8 billion in 2018, according to estimates by Modi.

During the first nine months last year, the HKEX reported net profit of HK$4.5 billion, a decrease of 31 per cent on year, or 23 per cent excluding last year’s one-off gain from a property sale in 2015.