Hong Kong Bourse’s Quarterly Profit Misses Estimates

Hong Kong Exchanges & Clearing Ltd., the world’s third-biggest bourse operator by market value, said profit climbed 19 percent last quarter, trailing analysts’ estimates, as operating costs rose.

Net income increased to HK$1.02 billion ($132 million) in the three months through Dec. 31 from HK$864 million in the same period a year earlier amid a surge in initial public offerings, according to figures derived from the exchange’s full-year and nine-month results. That compares with the HK$1.19 billion average estimate of 18 analysts compiled by Bloomberg. Operating expenses jumped 45 percent to HK$759 million in the quarter from the year-earlier period.

Increased fees from higher trading volumes in 2013 were offset by weaker investment income and costs related to the acquisition of the London Metal Exchange, the Hong Kong bourse said in the statement. Net investment income dropped 24 percent last year to HK$581 million from a year earlier, while depreciation and amortization more than tripled to HK$507 million, according to the statement. Hong Kong Exchanges declared a final dividend of HK$1.72, an increase from HK$1.46 per share in 2012.

“Higher operating costs are a concern, though not that grave,” said Louis Tse, a Hong Kong-based director at VC Brokerage Ltd. “Slower turnover going forward could hamper long-term growth of the exchange, and that worries us. China’s economic downturn could hamper IPOs.”

IPOs Surge

The number of IPOs on the main board jumped to 48 last quarter from 13 a year earlier as the Hang Seng Index rebounded from a nine-month low in June, according to the bourse’s website. Funds raised from the share sales more than doubled to HK$107.2 billion. Hong Kong Exchanges shares fell 0.2 percent to HK$120.80 as of 3:23 p.m. in Hong Kong, erasing a gain of as much as 1.1 percent. The benchmark Hang Seng Index rose 0.7 percent.

The average daily value of shares bought and sold on the exchange rose 5.4 percent to HK$59 billion in the fourth quarter from a year earlier, Hong Kong Exchanges said today. That compares with Singapore, where daily average stock trading on the bourse dropped 20 percent to S$990 million ($783 million) in the same period, leading to a quarterly profit decline. Turnover in Australia increased 13 percent over the same span, according to data compiled by Bloomberg.

Market Volatility

The Hong Kong stock market extended gains in the fourth quarter, with the Hang Seng Index rising as much as 5.2 percent from the previous three months, boosted by optimism after China’s policy makers unveiled the biggest reform package since the 1990s. Shares erased gains since early December amid a year-end cash crunch that drove China’s money-market rates to the highest since June and signs the mainland economy was slowing.

The LME, which Hong Kong Exchanges bought for $2.2 billion in December 2012 to expand into commodities, contributed HK$326 million of profit in 2013, the Asian bourse said today. LME’s futures and options volume climbed 7.1 percent to record 171.1 million lots in 2013, it said in an e-mailed statement last month. The LME accounts for 84.2 percent of global exchange-traded metal-futures trading, up 1.3 percentage points from 2012, according to the statement.

As of today, 26 class-action lawsuits have been filed against the LME in the U.S. alleging anti-competitive behavior in the warehousing industry in connection to aluminum prices, Hong Kong Exchanges said. The lawsuits are without merit and the LME will contest vigorously, it said. The Hong Kong bourse’s legal and professional fees rose by HK$92 million in 2013 to HK$146 million, partly on implementing LME’s strategic projects and seeking legal advice, it said.

IPO Debate

Companies going public last quarter included China Cinda Asset Management Co., the state-owned bad-loan manager that raised HK$21.9 billion, and China Everbright Bank Co., which raised HK$24.9 billion to strengthen capital buffers, according to the bourse’s website. BGI Tech, a unit of the world’s biggest DNA-sequencing group, plans to seek about $400 million from a share sale, two people with knowledge of the matter said this month.

Hong Kong needs a debate on how to handle “innovative companies,” Charles Li, chief executive officer of the exchange, wrote in a blog post in October, after share-sale talks with Alibaba Group Holding Ltd. were said to break down over the company’s proposal for a partnership structure that would let members of senior management control a majority of board nominations.

“There was a positive turning point in the global economic recovery in 2013,” Chow Chung Kong, Hong Kong Exchanges’s chairman, said in the statement. That provided “positive momentum to the trading and fundraising activities of our securities and derivatives markets in Hong Kong.”

Alibaba, a Chinese e-commerce company said to be preparing what may be the world’s biggest IPO since Facebook Inc., hasn’t decided when and where to list shares, the company said in an e-mailed statement on Nov. 20.

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