Hong Kong Bourse Quarterly Profit Worst Since ’09 on Trade Drop

Hong Kong Exchanges & Clearing Ltd. (388) missed earnings estimates, posting the lowest profit since the global financial crisis as turnover and listings fell at the world’s largest exchange operator by market value.

Net income fell 32 percent to HK$864 million ($111 million) for the three months ended Dec. 31 from HK$1.27 billion a year earlier, according to figures derived from the company’s full- year statement. That compares with the average HK$1.11 billion estimate of 3 analysts surveyed by Bloomberg News. The result was the worst since the first quarter of 2009 for the company which last year bought the London Metal Exchange. The stock climbed 0.4 percent to HK$138.30 as of 3:24 p.m. in Hong Kong today, reversing an earlier loss.

“Investors are now watching closely the LME development to see if it will have a positive impact on the stock exchange,” said Ben Kwong, chief operating officer at brokerage KGI Asia Ltd. in Hong Kong. The company’s shares are likely to trade between HK$130 and HK$150 “until there’s a fresh catalyst for earnings. It all depends on market activity in the coming months.”

Shares of Hong Kong Exchanges rose 4.5 percent this year through yesterday as improving economic reports from China and the U.S. fueled optimism that increased activity in the market will boost profitability at the exchange. The stock trades for about 29.5 times estimated earnings, compared with 17.8 times for the Bloomberg World Exchanges Index. (BNWEXCH)

For the full year, net income at the Hong Kong bourse fell 20 percent to HK$4.08 billion, or HK$3.74 a share, from HK$5.09 billion, or HK$4.70 a share, a year earlier, the company said in a statement today. That compares with the average HK$4.29 billion estimate of 20 analysts surveyed by Bloomberg News.

Turnover Slide

Average daily turnover value on the exchange was HK$53.9 billion, a drop of 23 percent from the previous year, the bourse operator said. Sales fell 8.2 percent last year. Funds raised through initial public offerings on the main board plunged 66 percent to HK$89 billion in 2012 from a year earlier, the statement said.

Global equity volumes plunged last year, squeezing exchanges and brokerages as slowing growth in China and the U.S., plus Europe’s sovereign-debt crisis, sapped investor confidence. Hong Kong Exchanges bought the LME for $2.2 billion in December as Chief Executive Charles Li seeks to transform the bourse into a comprehensive exchange dealing in equities, commodities, fixed income and foreign exchange products and their derivatives.

Singapore, Japan

Singapore Exchange, operator of Southeast Asia’s biggest stock market, last month reported a 17 percent gain in second- quarter profit, while Japan Exchange Group Inc., created by the merger of the nation’s two biggest bourses said it is willing to pursue an alliance or merger.

Hong Kong’s stock market climbed last quarter, bouyed by foreign inflows after the U.S. Federal Reserve began a third round of asset purchase in September. The city’s de facto central bank bought almost $14 billion to defend the local currency’s peg to the U.S. dollar from October through December.

China Vanke Co., the country’s biggest publicly traded property developer, said this month that shareholders approved its plan to convert its Shenzhen-listed B shares into Hong Kong- listed H shares. Livzon Pharmaceutical Group Inc. also said last month it will convert its B shares into H shares, while Securities Times reported Shanghai Diesel Engine Co. is considering the conversion.

Hong Kong Exchanges declared a final dividend of HK$1.46 a share, a share, down from HK$2.09 in 2011.

Operating expenses rose 13 percent to HK$1.96 billion from the previous year, the statement said.

To contact the reporter on this story: Kana Nishizawa in Hong Kong at knishizawa5@bloomberg.net

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net

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