Incident: On August 21, HKEx disclosed its 2024 interim results, which were in line with expectations. 1H24 achieved total revenue of HK$10.62 billion/yoy +0.4%; net profit to mother of 6.13 billion HKD/yoy -3.0%; 2Q24 achieved total revenue of HK$5.42 billion/yoy +8.0%; and net profit of 3.16 billion HKD/yoy +8.6%. Total assets at the end of 1H24 were HK$393.4 billion/ +15.3% compared to the end of '23, and net assets of HK$52.7 billion/ +2.7% compared to the end of '23.
Looking at segment performance, the spot and derivatives division was under pressure, and the commodity segment's performance achieved a high increase. Revenue from the 1H24 Spot, Equity Securities and Derivatives, Commodities, Data and Connectivity division and corporate projects was HK$41.3, 31.0, 1.41, 1.05, 0.94 billion, respectively, -1.05 and 0.94 billion, compared with -1.8%, -10.3%, +35.2%, +2.5% and +9.9%, respectively, accounting for 38.9%, 29.2%, 13.2%, 9.9% and 8.9% of revenue; from a profit perspective, the EBITDA for the 1H24 subsector was 35.1, 24.9, 0.82, 0.84 and 0.006, respectively HKD billion was -3.9%, -15.1%, +82.1%, +3.8%, and -60.0%, respectively. The 1H24 commodity segment achieved a high increase mainly due to a 29% increase in LME metal contract ADV and an increase in transaction and settlement fees since the beginning of this year.
Investment returns are under slight pressure, and the return on investment is increasing year-on-year in a high-interest environment. The 1H24 Hong Kong Stock Exchange achieved investment income of 2.52 billion HKD/yoy -5.8%, of which the margin and clearing house fund investment income was 1.62 billion HKD/yoy -12.9%. The decline was mainly due to the contraction of margin size and the increase in the share of yen collateral for settlement participants; the investment income of 1H24 Hong Kong Stock Exchange's capital was 0.9 billion HKD/yoy +10.3%, of which the external portfolio income was 0.23 billions/yoy +8.4%. In terms of return on investment, thanks to the maintenance of an overseas high interest rate environment, the annual return on investment of the 1H24 Hong Kong Stock Exchange Margin and Clearing House Fund reached 1.64% /yoy+0.06pct, the same as at the end of 23, and the annualized return on the company's capital was 5.33% /yoy+0.53 pct.
Spot business: 1H24 Hong Kong stock trading activity was under pressure but showed a recovery trend. Interconnection transactions were steady. Northbound ADT hit a half-year high, and southbound ADT surged in the second quarter. The 1H24 Hong Kong stock market ADT was 110.4 billion HKD/yoy -4.4%, of which the 2Q24 Hong Kong stock ADT was 121.6 billion HKD/yoy +18.3% /qoq +22.3%. In terms of connectivity, 1H24 southbound ADT was HKD37.5 billions/yoy +11%, second quarter ADT was HKD44.1 billions/yoy +42.3%, northbound ADT was 130.2 billions/yoy +19.1%, second quarter ADT was 127.3 billions/yoy +3.9%; 1H24 connectivity and other revenue was HK$1.2 billion per yoy +4.1%, accounting for revenue 11.3% /yoy+0.40pct
Tier 1 market: The scale of Hong Kong stock IPO fundraising picked up in the second quarter, and I am optimistic that the activity of the Hong Kong stock Tier 1 market will continue to increase. 1H24 Hong Kong shares added 30 new listed companies, with an IPO fundraising scale of 13.4 billion HKD/yoy -25.1%; of these, 2Q24 Hong Kong shares added 18 listed companies, and the IPO fundraising scale was 8.6 billion HKD/yoy -23.2% /qoq +79.2%. In terms of listing reserves, according to Wind statistics, as of 2024/8/21, a total of 96 companies are currently applying for listing; we believe that the subsequent acceleration of the listing of mainland and Saudi companies in Hong Kong is expected to become a new driver for the recovery of Hong Kong stock IPOs.
Derivatives business: Derivatives business ADV continues to grow, and market innovation is progressing steadily. 1H24 HKEx derivatives contract ADV reached 1.533 million/yoy +12.0%, including ADV 0.837 million/yoy +13.9%, SEHK stock options contract ADV 0.696 million/yoy +10.0%; 2Q24 futures derivatives contract ADV 0.818 million/yoy +14.1%, SEHK share options ADV 0.747 million/ YOY +24.7% Furthermore, in April 24, the Hong Kong Stock Exchange plans to develop a new derivatives platform - the Pioneer Derivatives Platform. The platform is expected to further enhance the Hong Kong Stock Exchange's trading, clearing and risk management capabilities and enhance its competitive advantage in the global derivatives market.
Investment analysis: The reform of the Hong Kong stock market is progressing steadily. It is recommended to focus on overseas interest rate cuts in the second half of the year and the restoration of trading activity on the Hong Kong Stock Exchange, and maintain the “Highly Recommended” rating. Since 24, the Hong Kong Stock Exchange has introduced a series of policies to enhance market attractiveness (expanding the scope of connectivity, launching virtual asset ETFs, etc.). Subsequent Hong Kong stock market reforms are expected to further enhance market attractiveness. Furthermore, considering that the Federal Reserve's interest rate cut in the second half of the year is approaching, the Hong Kong Stock Exchange is expected to benefit from the recovery in the overall activity of the Hong Kong stock market. The company's net profit for 24-26 is estimated to be HK$12.2, 13.09 and 14.21 billion, respectively, or +2.8%, +7.3%, and 8.5% year-on-year, corresponding to current PE of 23.8, 22.1, and 20.4 times, respectively.
Risk warning: There is uncertainty about the Fed's interest rate hike policy. The domestic macroeconomic recovery falls short of expectations, and the implementation of the Hong Kong stock market policy falls short of expectations.