Incidents:
The Hong Kong Stock Exchange announced its results report for the first quarter of 2024. 1Q24 revenue and other revenue HK$5.201 billion, yoy -6% /qoq +7%; core business revenue of HK$4.7 billion, yoy -7%; EBITDA of HK$3.71 billion, yoy -12%; net profit to mother of HK$2.97 billion, yoy -13% /qoq +14%.
Performance Overview: Profit declined year over year, with strong performance in the derivatives segment. In 1Q24, the company achieved revenue and other earnings of HK$5.201 billion, -6% /month-on-month +7%; net profit to mother of HK$2.97 billion, -13% /month-on-month +14%. The year-on-year decline in performance was mainly due to (1) a decrease in transaction and settlement fees due to a year-on-year decline in ADT in the 1Q24 spot market. The company's 1Q24 derivatives ADT was +6% year-on-year and +12% month-on-month, hitting a quarterly high; (2) the decrease in the number of IPOs reduced the company's listing fee revenue.
Segment performance: Trading business fluctuated slightly, and investment income declined slightly (1) The company achieved trading and trading system usage fees of HK$1.58 billion in 1Q24, -7% year-on-year, mainly due to the decline in trading volume and reduction in A-share transaction fees, which reduced Shanghai and Shenzhen Stock Connect's transaction fee revenue. (2) Settlement fees and payment charges of HK$1.02 billion, -4% year-on-year, mainly due to a decrease in the number of transactions. (3) Listing fee of HK$370 million, -13% YoY. (4) The company achieved investment income of HK$1.34 billion in 1Q24, -13% year-on-year; the company's net capital investment was HK$535 million, -3% year-on-year, mainly due to a decrease of 13% year-on-year in revenue from external portfolios.
Market performance: The performance of the IPO market is sluggish, and the overall market is expected to gradually recover (1) Spot market: 1Q24 spot market ADT of HK$99.4 billion, -22% year over year; the company achieved northbound ADT of 133 billion yuan, yoy +37%, southbound ADT of HK$31 billion, yoy -17% in 1Q24. (2) ETP market:
The company achieved ETPS-ADT of HK$13.3 billion in 1q24, -8% year-on-year. The decline was better than that of major indices in Hong Kong. (3) IPO market: There were 12 companies listed on the Hong Kong Stock Exchange in 1Q24, down 6 from the same period last year. The amount of IPOs raised was 4.8 billion yuan, -28% over the same period last year. The reserves for subsequent IPO applications are still good. As of the end of March '24, there were 85 active applications.
Profit Forecasts, Valuations, and Ratings
The company's revenue for 24/25/26 is expected to be HK$21,927/23,768/26,393 million, respectively, or +7%/+8%/+11%; net profit to mother is HK$12,398/12,980/14,324 million, respectively, +5%/+10% YoY; and EPS of HK$9.78/10.24/11.3, respectively. We are still optimistic about the company's short-term profit recovery capacity and long-term growth potential. We will give the company 35X PE for 24 years, target price of HK$342, and maintain a “buy” rating.
Risk warning: The Fed's interest rate hike has exceeded expectations, China's economic growth rate is slowing down, and the return of Chinese securities is slowing down.