Main points of investment
Our point of view: geopolitics, overseas monetary policy tightening, COVID-19 epidemic and other factors may continue to affect market activity in the first half of 2022, but as external risks ease and China's economy recovers in the second half of the year, the average daily turnover of the Hong Kong stock market is expected to pick up and investment returns may improve. We maintain our "buy" rating and adjust our target price to HK $347.7. From 2022 to 2024, the company's target price corresponds to the PE level of 35.9,32.2 and 29.4 times, respectively. The company's target price is about 8.2% higher than the current price, which investors are advised to pay attention to.
Revenue and net profit fell year-on-year: 2022Q1 achieved operating income of HK $4.69 billion, down 21.3 per cent from a year earlier; net profit attributable to shareholders was HK $2.668 billion, down 30.5 per cent; and basic earnings per share was HK $2.11, down 30 per cent from a year earlier. The decline in revenue from the main business of the company's 2022Q1 was mainly due to a decrease in transaction and settlement fees due to a decline in the average daily turnover in the Hong Kong stock market, as well as a reduction in depository fees as a result of a reduction in fees for electronic IPO services.
2022Q1 Hong Kong stock market average daily turnover fell significantly compared with the same period last year, but increased month-on-month. The average daily turnover on the Hong Kong stock market of 2022Q1 was HK $146.5 billion, down 35 per cent from the new record set by 2021Q1, but 16 per cent higher than that of 2021Q4. The average daily turnover of northbound and southbound transactions also declined. The average daily turnover of northbound transactions reached 105.9 billion yuan (including 48.8 billion yuan for Shanghai Stock Connect and 57.1 billion yuan for Shenzhen Stock Connect), down 16 percent from the same period last year, while the average daily turnover for southbound transactions reached 35.5 billion Hong Kong dollars, down 41.6 percent from the same period last year. Bond transactions hit a quarterly high.
The amount of money raised by initial public offerings fell sharply: there were 17 IPO in 2022Q1's Hong Kong stock market, and the initial public offering raised HK $14.9 billion, down 89 per cent from 2021Q1. According to the scale of financing, 2022Q1 Hong Kong IPO is mainly concentrated in the raw materials industry, information technology industry, health care industry and industry, with IPO accounting for 28.5%, 25.2%, 18.0% and 14.5%, respectively.
The derivatives market fell slightly: the derivatives division of 2022Q1 HKEx earned HK $930 million, down 8.4 per cent from a year earlier. The average daily turnover of various warrants on the Hong Kong Stock Exchange was 20.5 billion Hong Kong dollars, down 22.3 percent from the same period last year.
2022Q1, with the expansion of market volatility and the introduction of new derivatives, the number of derivative contracts on the 2022Q1 Futures Exchange has achieved steady growth, with an average daily turnover of 705000, an increase of 21% over 2021Q1 and 39% over 2021Q4.
Revenue from the commodity segment increased slightly: 2022Q1's revenue from the commodity segment was HK $376 million, up 4.2% from the same period last year, mainly due to increased volatility in the 2022Q1 market and rising commodity prices, resulting in an increase in trading volume compared with 2021Q1 and 2021Q4.
Risk hints: the trading growth of the Shanghai-Hong Kong Stock Connect is not as expected; the secondary listing of Chinese stocks in Hong Kong is not as expected; and the negative impact of the epidemic on various businesses is higher than expected.