Hong Kong exchange operator HKEX expects 11pc rise in interim profit on higher market turnover
Hong Kong Exchanges and Clearing, the local bourse operator, is expected to post 11 per cent net profit growth for the first half of 2017 as a result of better market turnover and higher volume of derivative trading, according to analysts.
HKEX is expected to report on Wednesday that its second quarter net profit grew 3 per cent to HK$1.6 billion, or HK$1.34 per share, according to consensus of analysts polled by Bloomberg. They expected revenue for the quarter would be up 7 per cent to HK$3.09 billion.
Add the already announced first quarter net profit of HK$1.72 billion and the bourse operator’s first half profit is expected to reach HK$3.32 billion, up 11 per cent from HK$2.99 billion in the same period last year.
First half revenue is expected to grow 10.98 per cent to HK$6.248 billion, up from HK$5.6 billion in the first half of last year.
“In the first half of 2017 the average daily turnover was HK$76 billion which is up 12.6 per cent year on year from the first half of 2016. The higher market turnover brought in better fee income which contributes to the profit for HKEX,” said Kenny Wen, a wealth management strategist at Sun Hung Kai Financial.
“The volume of derivative products trading also reach a record high level in the first half of this year which also brought in higher fee income,” Wen said.
HKEX earns fee income from investors on stock and derivatives products trading as well as from listing fees paid by listed companies. It also earn fee income from commodities trading from its wholly owned subsidiary London Metal Exchange, which is the world’s largest metal exchange.
Funds raised through initial public offerings in the first half totalled HK$53.6 billion, an increase of 23 per cent when compared with HK$43.6 billion for the same period last year. In terms of numbers, there were 72 newly listed companies in the first half, up 80 per cent when compared with 40 for the same period last year.
Gordon Tsui, managing director of Hantec Pacific, said the higher number of new listings and the stock connect programmes have brought in higher revenue to the exchange.
“Since the launch of the Shenzhen and Hong Kong stock connect from December and the removal of the total quota for the stock connect scheme, we have seen more fund flows from mainlanders buying Hong Kong stocks in the first half. Mainlanders now account for about 10 per cent of all turnover of the Hong Kong stock market which boosts fee income for the exchange,” Tsui said.
Tsui said the launch of bond connect on July 3 and the two new gold futures contracts on July 10 would bring in more revenue to the exchange in the second half.
In the first quarter the exchange already reported a better than expected 20 per cent growth in its net profit to HK$1.72 billion, which was boosted by a one-off HK$55 million interest payment from the liquidation of Lehman Brothers. Excluding that, it still reported profit growth of 16 per cent to HK$1.67 billion.
HKEX chief executive Charles Li Xiaojia will host a briefing on Wednesday to discuss the results. The market will also be keen to learn more about the progress of the new third board planned for next year.
The exchange is seeking consultations until August 18 on a proposal to introduce a new board to attract more technology companies to list in Hong Kong.
The proposed new board would consist of two markets. The first is a premium market open to all investors, hosting companies that meet the eligibility requirements for a main board listing but which have a dual-class share structure currently banned on the main exchange.
The second market will be focused on start-ups and would be limited solely to professional investors.
The exchange is also keen on convincing Saudi Aramco to list in Hong Kong, expected to be the largest initial public offering worldwide, raising US$100 billion. Markets expect the Saudi Arabia oil company to sell 5 per cent of the firm, valuing the business at US$2 trillion. New York, London, Hong Kong and Tokyo are in the race to capture the listing.