Description of the event
HKEx publishes its 2024 Interim Report. The company achieved revenue and other income of HK$10.621 billion in the first half of 2024, or +0.43% year-on-year; realized net profit to mother of HK$6.125 billion, or -3.0% YoY.
Incident comments
The company's performance was steady, and 2024Q2 performed well in a single quarter. In the first half of 2024, the Hong Kong Stock Exchange achieved operating income of HK$10.621 billion, up +0.43% year on year; net profit to mother of HK$6.125 billion, down 3.0% year on year; 2024Q2 net profit to mother increased by 8.64% and 6.23%, respectively, in a single quarter. According to the fee model, in the first half of 2024, transaction and trading system usage fees, stock exchange listing fees, settlement and settlement fees, depository and escrow fees, market data fees, and net investment income year-on-year growth rates were +3.39%, -7.64%, +4.78%, -2.52%, -0.93%, and -5.79%, respectively, accounting for 30.98%, 6.83%, 20.01%, 5.10%, 5.01%, and 23.74% of revenue. Among them, the increase in trading and trading system usage fees is due to an increase in trading activity in the commodity segment, while the increase in settlement and delivery fees is due to an increase in the average daily turnover of the Shanghai-Shenzhen-Hong Kong Stock Connect.
Trading activity in the commodity market has increased dramatically, and the Shanghai-Shenzhen-Hong Kong Stock Connect has achieved high growth. 1) In the spot market, the average daily turnover of 2024H Stock Exchange equity securities decreased by 2.5% year on year, and the average daily turnover of Shanghai, Shenzhen and Hong Kong Stock Connect increased by 19.1% year on year, resulting in a 4.3% year-on-year increase in settlement fee revenue. Despite the rapid increase in the turnover of the Shanghai-Shenzhen-Hong Kong Stock Connect, due to the 30% reduction in A-share transaction fees from August 28, 2023 and the impact of the devaluation of the RMB, the Shanghai, Shenzhen, and Hong Kong Stock Connect transaction fees decreased by 6.6% year on year. 2) In the derivatives market, 2024H derivatives transaction fees and trading system usage fees decreased by 0.7% year-on-year, mainly due to the decline in derivatives trading activity on the Stock Exchange. 3) In the commodity market, the average daily turnover of LME metal contracts increased by 29.1% year-on-year, resulting in a 42.7% year-on-year increase in commodity segment transaction fees and trading system usage fees.
The size of IPOs has declined, and listing costs are under year-over-year pressure. 1) In the spot market, the 2024H Stock Exchange listing fee decreased by 3.8% year on year. There were 30 newly listed companies, and the amount of capital raised fell 11.3% year on year. 2) In the derivatives market, the 2024H derivatives market stock exchange listing fee decreased by 12.8% year on year to HK$0.294 billion, mainly due to the year-on-year decrease in the number of newly listed derivative warrants and bullbear certificates.
The average amount of capital has declined, and the return on investment continues to rise. The investment income of the 2024H Margin and Clearing House Fund decreased by 12.9% year on year, mainly due to lower margin requirements, the average capital amount decreased 15.9% year over year, and the annualized return on investment increased 0.06 pct to 1.64% year over year.
With the support of a series of connectivity policies, we believe that the Hong Kong Stock Exchange already has the basic conditions for recovery at the level of capital market system construction and its own innovation. At the macro level, the Fed is expected to cut interest rates gradually. Liquidity in the Hong Kong stock market is expected to gradually increase, and overall market activity and valuation are expected to recover accordingly. The company is expected to achieve revenue and other income of HK$21.834/22.685/24.267 billion in 2024-2026, and net profit to mother of HK$12.677/13.063/13.86 billion. The corresponding PE valuation is 22.86/22.19/20.91 times, respectively, giving a purchase rating.
Risk warning
1. A sharp correction in the equity market; 2. The reform of the listing system fell short of expectations 3. Connectivity is progressing slowly; 4. The Federal Reserve's policy is uncertain.