Hong Kong Exchange's Q1 net income falls 9% to HK$1.43b

[HONG KONG] Hong Kong Exchanges & Clearing, Asia's biggest exchange operator, said first-quarter earnings fell nine per cent on lower trading turnover and higher costs.

Net income dropped to HK$1.43 billion (S$252 million) in the period, down from HK$1.58 billion a year earlier, the exchange said in a statement on Wednesday. Revenue declined 2 per cent to HK$2.75 billion.

HKEx shares have risen about 15 per cent 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 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 per cent 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 per cent to an average HK$70.8 billion in the first four months from a year earlier, HKEx said on May 6.

The average daily number of futures and options contracts traded declined 2 per cent to 784,873 in the same period. HKEx's shares fell 0.2 per cent to HK$185.4 at the noon break in Hong Kong.

BLOOMBERG