Hong Kong bourse beats analyst forecasts with 28pc profit jump on rising turnover, listings 

HK$7.4b profit marks second best year ever, behind the HK$7.96b earned in 2015. Bourse to pay final dividend of HK$2.85 per share, up 27pc from 2016

PUBLISHED : Wednesday, 28 February, 2018, 1:21pm
UPDATED : Wednesday, 28 February, 2018, 11:44pm

Hong Kong Exchanges and Clearing, which operates Asia’s third largest stock market, reported better-than-expected net profit of HK$7.4 billion (US$950 million) for 2017 on Wedesday, a 28 per cent year on year rise, on the back of higher market turnover and a record number of new listings.

The result beat the consensus forecast of a 27 per cent profit growth to HK$7.34 billion, according to a Thomson Reuters poll of analysts.

It also marked its second best year ever, behind the HK$7.96 billion earned in 2015.

Earning per share stood at HK$6.03, up 27 per cent from a year earlier.

The company said it would pay a final dividend of HK$2.85 per share, bringing the full-year dividend to HK$5.4, up 27 per cent from 2016.

HKEX’s shares fell 2 per cent to close at HK$284.00. The bourse operator’s shares have risen almost 49 per cent in the past 12 months, making it the 10th best performer on the Hang Seng Index.

Fourth-quarter profit stood at HK$1.87 billion, up 51 per cent on a year ago, according to calculations by the Post, which also beat analysts’ forecast of HK$1.85 billion.

“In Hong Kong, we witnessed a bullish securities market especially in the fourth quarter of 2017 when the average daily turnover reached HK$107.3 billion,” HKEX chairman Chow Chung-kong said in the results statement. Chow will step down in April after serving in the post for six years.

In Hong Kong, we witnessed a bullish securities market especially in the fourth quarter of 2017 when the average daily turnover reached HK$107.3 billion
HKEX chairman Chow Chung-kong

Higher stock market turnover helped deliver a 38 per cent annual increase in trading fee income at HK$1.95 billion. The average daily turnover last year stood at HK$88.2 billion, up 32 per cent from HK$66.9 billion in 2016, but still below the HK$105.6 billion in 2015.

HKEX plans to establish itself as an iconic location similar to the Nasdaq in New York, as well as moving all its existing offices from IFC One and other areas, to Exchange Square, bringing together 1,400 staff, Charles Li Xiaojia, its chief executive, told a results briefing.

The company is also planning to install a huge screen on the outside of Exchange Square, offering market data and financial products.

Li said the Nasdaq in the US already has such a screen outside its building and he hopes the exterior of the new HKEX office will make a similar impact.

“Although we have earned a lot of money, we are very concerned about our cost controls. Our office removal plan is not aimed at being anything too fancy.

“The rent at the Exchange Square is cheaper than IFC,” Li said, but he refused to disclose how much cheaper it was.

Regarding his personal appointment as a CPPCC member, Li said he would not use his new role to promote HKEX.

“The appointment is not for promoting my company. I am looking forward to learning and listening. And whenever appropriate, I will share my views on how Hong Kong can contribute to the country’s economy as a whole,” Li said.

In April 2015, China allowed mutual funds to invest in Hong Kong stock market via the Stock Connect between Hong Kong and Shanghai, which has boosted turnover to an average HK$200 billion per day. Turnover, however, dropped after the mainland markets’ slump in mid 2015.

It rose again in 2017 as mainland investors increased their investment in Hong Kong equities after the launch of the Shenzhen and Hong Kong Stock Connect in December 2016.

Northbound and southbound trading through the two connects grew significantly last year, increasing by 194 per cent and 170 per cent, respectively, from 2016.

Their totals now represents almost 10 per cent of daily turnover, which helped drive the Hang Seng Index up 36 per cent last year, making it the world’s best performing benchmark.

Listing fees, a major source of income, rose 8 per cent last year to HK$828 million, as a record 174 companies launched IPOs. 

Since there were no blockbuster floats, however, total funds raised dropped 34 per cent to HK$128.2 billion.

HKEX’s wholly owned London Metal Exchange also saw metal trading volume up 1 per cent in 2017.

Chow, however, warned on risks ahead, as stock markets worldwide have seen intense volatility in the first two months of this year, adding that impending US interest rate increases and US tax reforms pose challenges to global markets.

“The world is also moving into a new era of new economy businesses and technology innovations, and the financial markets are facing a landscape filled with both opportunities and challenges,” Chow said, adding the exchange is in the midst of its own listing reforms to capture those companies to list. 

The exchange last Friday announced it would bring forward those listing reforms from June to late April, and would start accepting listing applications from biotech companies without revenue or giant new-economy companies with dual-class share structures to list in Hong Kong, which has led analysts from Citi and CICC to view the developments positively.