Hong Kong Exchange Net Income Falls 9 Percent to HK$1.43 Billion

  • Exchange says will take ``more cautious'' approach to costs
  • Stock Connect generated HK$35 million in revenue in period

Hong Kong Exchanges & Clearing Ltd., Asia’s biggest exchange operator, said first-quarter earnings fell nine percent on lower trading turnover and higher costs.

Net income dropped to HK$1.43 billion ($184 million) in the period, down from HK$1.58 billion a year earlier, the exchange said in a statement on Wednesday. Revenue declined 2 percent to HK$2.75 billion.

HKEx shares have risen about 15 percent from a 2016 low of HK$161.80 on Jan. 27, partly propped up by some market participants’ expectations about a possible inclusion of China A shares into MSCI Inc.’s global indexes and launch of the Shenzhen-Hong Kong stock trading link this year. An MSCI inclusion and launch of the link would boost trading and benefit the exchange operator’s earnings, according to a Macquarie Capital Ltd. report on Tuesday.

“The company should be a long-term beneficiary of China’s capital market liberalization and internationalization,” Macquarie’s analyst Matthew Smith wrote in the report. He downgraded HKEx shares to neutral from outperform. “The stock has moved higher even as market activity has slowed, suggesting limited upside as near-term catalysts may not pan out so quickly.”

Operating expenses at the exchange increased by 19 percent to HK$854 million because of additional headcount, higher legal costs and professional fees. The bourse said it would take a “more cautious approach” on the timing of less critical projects in view of the continued uncertainty in market conditions. Revenue from a stock trading link with Shanghai was HK$35 million in the quarter.

Equity daily trading fell 38 percent to an average HK$70.8 billion in the first four months from a year earlier, HKEx said May 6. The average daily number of futures and options contracts traded declined 2 percent to 784,873 in the same period.

HKEx’s shares fell 0.2 percent to HK$185.4 at the noon break in Hong Kong.

Before it's here, it's on the Bloomberg Terminal.