Hong Kong’s bourse to report best year since 2015 as listing, trading increase

The operator of Hong Kong stock exchange is likely to report a profit of HK$7.34b

PUBLISHED : Monday, 26 February, 2018, 10:53am
UPDATED : Monday, 26 February, 2018, 11:54pm

Hong Kong Exchanges and Clearing is likely to report its best financial year since 2015 as more investors poured into the city’s bourse in the past year, while more companies flocked to raise capital through initial public offerings.

Net income is likely to rise 27 per cent to HK7.34 billion (US$940 million) in 2017, according to a consensus of forecasts by analysts polled by Thomson Reuters. That’s the best year since 2015, when the Hong Kong bourse earned HK$7.96 billion in net income.

“The exchange is widely expected to have strong profit growth in 2017 as the market turnover is so strong,” said Christopher Cheung Wah-fung, a lawmaker for financial services and a broker. “The London Metal Exchange has also started to generate higher revenue and the number of new listings is also getting higher, which should boost the profitability of the HKEX up by about 30 per cent from last year.”

HKEX says listing reforms could be in place by late April

The average daily turnover in 2017 stood at HK$88.2 billion, up 32 per cent from HK$66.9 billion in 2016. The exchange earns its income from trading fee paid by investors on each stock transaction, which means a higher turnover results in higher income.

Listing fee was another major income source for the exchange in 2017 as a record 174 companies launched initial public offerings. However, since there were no blockbuster IPOs the total funds raised dropped 34 per cent to HK$128.2 billion.

The bourse operator’s shares have risen almost 49 per cent the past 12 months, the 10th best performer on the Hang Seng index.

The exchange last Friday announced that it would bring forward the listing reform from June to late April when it will start accepting IPO applications from biotech companies without revenue or giant new economy companies with dual class share structure to list in Hong Kong. The reform will also allow large companies now listed in the US and the UK to apply for secondary listings in Hong Kong.

A Citi Research report, led by analyst Darwin Lam, said it expected such companies to start applying for listings in Hong Kong from May, which would boost the outlook of HKEX.

Hong Kong bourse operator unveils multifunctional HKEX Connect Hall at site of trading hall

“We reiterate our view that the listing regime changes are a milestone for the Hong Kong stock market, which should help strengthen HKEX’s listing hub status,” Lam said in the report after the exchange’s announcement on Friday.

He has a “buy” rating on the HKEX and a target price at HK$330. The stock closed at HK$285.8 on Friday.

The investment bank CICC was even more bullish giving the HKEX stock a target price of HK$400 as it believes stronger-than-expected market turnover was likely to continue this year and next.

Average daily turnover in January reached HK160 billion, up 181 per cent from a year earlier. 

One of the driving forces for the rising turnover was the southbound flow from Chinese investors via the two stock connect between mainland exchanges and Hong Kong, which represented almost 10 per cent of daily turnover on some days last year.