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HKEX's third-quarter profit beats estimates even as turnover, fundraising were hit by protests

Enoch Yiuenoch.yiu@scmp.com

Hong Kong Exchanges and Clearing on Wednesday reported a better than expected 10 per cent decline in net profit during the third quarter even as stock market turnover and fundraising activity fell due to unprecedented anti-government protests.

HKEX, which operates Asia's third-largest stock market and owns the London Metal Exchange (LME), said that its July to September quarter net profit stood at HK$2.2 billion (US$280 million), down from HK$2.44 billion a year earlier. On a quarterly basis, net profit declined by 15.4 per cent from HK$2.6 billion in the April to June period before the city was hit by violent protests.

Its earnings per share of HK$1.76 per share beat market forecasts of HK$1.6, according to analysts polled by Bloomberg.

Its third-quarter revenue fell 6 per cent year on year to HK$3.34 billion, again beating consensus estimates of a 10 per cent drop.

Charles Li Xiaojia, chief executive of Hong Kong Exchanges and Clearing, said the bourse operator had a good nine months despite geopolitical challenges. Photo: Jonathan Wong alt=Charles Li Xiaojia, chief executive of Hong Kong Exchanges and Clearing, said the bourse operator had a good nine months despite geopolitical challenges. Photo: Jonathan Wong

The third quarter was disappointing for the HKEX chief executive Charles Li Xiaojia. Besides the lower turnover and fewer initial public offerings, he also failed in his £29.6 billion (US$38.12 billion) bid to buy the London Stock Exchange launched on September 11, as it was rejected by the board of the London bourse.

"We were disappointed not to proceed with a firm offer for LSEG (London Stock Exchange Group), but we remain resolutely focused on the successful execution of our three-year strategic plan, maintaining good cost discipline and capturing future growth opportunities," Li said in the results statement.

Hong Kong edges past Nasdaq as the world's third-quarter IPO hub

"Set against a challenging broad geopolitical backdrop, HKEX has had a good first nine months of 2019. Record stock connect revenue, recent resurgence in the IPO market and good returns from investment income offset some macro-driven softness in cash market volumes.

For the first nine months of this year, HKEX's net profit fell 1 per cent to HK$7.41 billion from HK$7.48 billion a year earlier.

According to Bloomberg's consensus estimates, the exchange may find it hard to achieve its full-year net profit growth of 2 per cent to HK$9.48 billion if the protests continue. 

"The stock market turnover has gone down and so has the trading fee and settlement fee incomes. This has hurt the stock exchange's profit outlook," said Gordon Tsui Luen-on, chairman of Hong Kong Securities Association.

The average daily turnover in the third quarter dropped 16 per cent year on year to HK$77 billion, while the nine-month turnover stood at HK$90.5 billion, a 21 per cent decline from HK$114.7 billion a year earlier, according to HKEX data.

Listing fee fell by 10 per cent during the quarter as the amount raised from IPOs plummeted by 63 per cent to US$7.13 billion " the lowest in two years, according to financial data provider Refinitiv. The number of IPOs also decreased to 22 from 52 a year earlier.

"However, the Hong Kong IPO market has become active again since September after the market sentiment improved. Hong Kong still has a chance to beat New York to reclaim the crown as the No. 1 IPO market worldwide for the full year," Tsui said.

China Feihe, whose baby milk formula is endorsed by actress Zhang Ziyi, completed its IPO on Wednesday. It is expected to raise up to US$1.14 billion if it can price its shares at the top end of the range, making it the third-largest IPO this year and the fourth IPO to raise more US$1 billion over the past two months. The offering is only less than Budweiser Brewing Company APAC's US$5.8 billion IPO in September and ESR Cayman's US$1.6 billion last month. Chinese sportswear manufacturer Topsports International Holdings also raised US$1 billion last month.

Hong Kong Exchanges and Clearing owns the London Metal Exchange. Photo: AFP alt=Hong Kong Exchanges and Clearing owns the London Metal Exchange. Photo: AFP

Turnover of metals contracts on the LME fell 4 per cent in the first nine months of the year to 618,000 lots.  

Meanwhile, the two stock connect schemes continue to bring additional revenue to the exchange. The average daily turnover from northbound trading " which refers to trading of A shares listed in Shanghai and Shenzhen via the HKEX " reached US38.5 billion, the second-highest quarterly turnover. The turnover via the connect schemes during the first nine months had doubled from a year earlier after major index compilers MSCI and FTSE Russell added the mainland traded shares to their benchmark indices.

HKEX's costs during the first nine months fell 1 per cent to HK$2.9 billion as a result of a change to the accounting standard treatment on lease. If the effect is stripped, expenditure rose 6 per cent during the period due to higher staff and IT costs. 

HKEX shares closed 0.72 per cent higher at HK$252 on Wednesday after the result announced at lunch break.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2019 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2019. South China Morning Post Publishers Ltd. All rights reserved.