3Q21's performance is in line with our expectations.
HKEx 3Q21 revenue was flat year-on-year / month-on-month + 7% to HK $5.3 billion, of which main business income was + 10% / month-on-month + 12% to HK $5.11 billion, mainly driven by a pick-up in transactions, in line with our expectations; homecoming net profit was-3% / month-on-month + 17% to HK $3.25 billion, basically in line with expectations.
Development trend
The rebound of ADT from the same period of the previous month led to the growth of the main business. 1) year-on-year total 3Q21 trading and settlement revenue + 11% / month-on-month + 22% to HK $3.5 billion (up to 66%), of which: 3Q Hong Kong stock ADT year-on-year + 17% to / month-on-month + 9% to HK $165.3 billion, stock index futures ADV rebounded month-on-month (+ 24%QoQ) / year-on-year decline narrowed (- 5%YoY), individual stock options ADV continued to grow (year-on-year + 19% / month-on-month + 22%), LME commodity trading volume remained stable (year-on-year + 2% / month-on-month-1%) 2) Interconnection continues to be active, 3Q21 revenue is + 26% / month-on-month + 33% to HK $770 million, and the proportion of quarterly income has increased to 15%. Among them: southbound ADT year-on-year + 55% / month-on-month + 20% to HK $42.5 billion, accounting for 12.8% of Hong Kong shares, northward ADT year-on-year + 19% / month-on-month + 38% to 139.7 billion yuan, accounting for 5.4% of A shares. 3) year-on-year listing fee + 13% / month-on-month + 18% to HK $560 million, 3Q completed IPO27 (year-on-year-32.5% / month-on-month + 93%), financing amount of HK $74.15 billion (year-on-year-39.8% / month-on-month-2.9%). By the end of the third quarter, the number of queuing enterprises reached 212, which is at an all-time high, and the listing process is expected to speed up as the market picks up.
Q3 market adjustment superimposed low-interest environment, investment income fell significantly. 3Q21 investment income and miscellaneous income decreased by 480 million (- 71%YoY) / month-on-month by 190 million (- 54%QoQ) to HK $200 million, of which: 1) the pooled investment plan lost HK $23 million per quarter, corresponding to 1.5 per cent of 3Q21 MSCI Word Index- and MSCI AC Asia ex Japan Index-10%. 2) margin and clearing house earnings of the post-trading segment were further-23% to HK $120 million, corresponding to 6m HIBOR-2bps to 0.24%.
From a segment point of view, 1) the income contributions of each segment of 3Q21 are: spot 30%, derivatives 17%, commodities 7%, post-trade business 39%, technology 5%, company project 1%. 2) EBITDA contributions are: spot 35%, derivatives 17%, commodities 5%, post-trading business 45%, technology 4%, company projects 1%.
The spot segment has an increased share and the EBITDA margin of the segment has remained high (year-on-year + 1.4ppt/ + 2.0ppt to 91 per cent), followed by the post-transaction segment (EBITDA margin maintained at ~ 90 per cent) and the derivatives segment (EBITDA margin is flat year-on-year, month-on-month + 4.1ppt to 78 per cent).
Profit forecast and valuation
Due to the adjustment of ADT and investment income assumptions, the 22-year profit of 2021 Universe was reduced by 1.7% to HK $12.8 billion / HK $14.6 billion. In the short term, the company's stock price catalysis mainly lies in the improvement of Hong Kong stock market sentiment; in the medium to long term, the growth of the company has been strengthened by the deepening of connectivity, the continuous reform of the listing system, and the building of an offshore financial product center. The company trades on 2021 47x/41x 22e pram E. Lower the target price by 5% to HK $580, corresponding to 50x 2022e Pax E and 22% upstream space. Maintain an industry rating that outperforms.
Risk
The market activity has declined; the activity after the launch of new products and the listing process of the new economy are not as expected.