Performance summary: The company disclosed 2024Q1 results, and achieved total revenue of 5.20 billion yuan in 24Q1, a year-on-year decrease of 6%. The decline in performance was mainly due to a decline in Hong Kong stock turnover. The average daily ADT of the Hong Kong Stock Exchange was $99.36 billion in 24Q1, down 22% from $127.82 billion in 23Q1. The decline was mainly due to the increase in derivatives and LME commodity trading on the Futures Exchange, which achieved net profit of 2.97 billion yuan in 24Q1, a year-on-year decrease of 13%. 24Q1EBITDA profit margin fell to 72%, down 4pct year over year.
(1) Spot market: Stock trading was affected by the macroeconomic environment and continued to drag down stock transaction fee revenue. The decline in related revenue was basically the same as the decline in ADT, but settlement fees were partially offset by an increase in northbound transactions (ADT increased 37%). Overall, 24Q1 spot segment revenue was 1.88 billion yuan, down 12% year on year. Among them, a total of 12 companies were newly listed on the Hong Kong Stock Exchange in 24Q1, raising a total capital of $4.8 billion, a year-on-year decrease of 28%, resulting in a 13% year-on-year reduction in listing fees. However, the number of IPO applications was relatively steady. As of the end of March '24, there were 85 companies in the process of filing for listing in reserve. (2) Derivatives and commodities market: It is worth mentioning that compared to the basic flat trading volume of stock options on the Stock Exchange, Futures Exchange derivatives and LME metal contract volumes increased by 14% and 31%, respectively. Part of the increase in contracts was due to increased fee discounts for drainage, etc. (3) As of 24Q1, the share of transaction fees from spot, derivatives, and commodities was 41%, 30%, and 22%, respectively, a change of -8/1/7pct from 23Q1.
Investment returns contribute to core performance growth. The net return for 24Q1 (1) margin and clearing house funds rose to 1.8% (1.6% in 23Q1). However, due to a decline in capital, net investment income fell from $990 million in 23Q1 to $81 million in 24Q1. (2) The return on investment in the company's project division was basically the same as in the same period last year. (3) Investment income of HK$1.34 billion, a year-on-year decrease of 13%.
Profit forecast and investment advice: The Fed's interest rate cut is expected to drive performance growth. Turnover showed signs of recovery in March-April '24. It is expected to achieve net profit of HK$13.2 billion and EPS of HK$10.41 in 2024. The company was given a reasonable valuation of 30 times PE in 2024, corresponding to a reasonable value of HK$312/share, maintaining an “gain” rating
Risk warning: macroeconomic downturn exceeds expectations, inflationary pressure rises, geopolitical instability, etc.