24H1 performance: In the first half of 2024, the company achieved revenue and other income of HK$10.62 billion (YoY +0.43%), mainly due to an increase in LME transaction and settlement revenue, but this was partially offset by a decrease in spot market trading and settlement revenue, net investment income and listing fee revenue. Net profit attributable to mother HK$6.13 billion (YoY -2.96%), mainly due to the decline in average daily trading volume in the first half of the year, ADT fell 4% to HK$110.4 billion. Looking at various business segments, transaction fees and trading system usage fees/settlement and delivery fees/stock exchange listing fees/escrow and agent service fees/market data fees/other revenue reached HK$32.9/21.3/7.3/0.54/0.53/0.85 billion in the first half of 2024, with year-on-year changes of +3.4%/+4.8%/-7.6%/-2.5%/-0.9%/10.1%, respectively. The Company's basic earnings per share were HK$4.84 and announced a cash interim dividend of HK$4.36 per share, with a dividend ratio of 90%.
Marginal recovery in the spot market: spot market revenue in the first half of the year was 4.13 billion yuan, down 1.8% year on year, mainly due to a decrease in average daily turnover of HK$110.4 billion (YoY -4%). Although 24Q2 improved year over month, the average daily turnover was HK$121.6 billion (YoY +18%, QoQ +22%), but due to the overall weakening of the impact of the first quarter, revenue declined slightly in the first half of the year. The Shanghai-Shenzhen-Hong Kong Stock Connect trading volume performed well in the first half of the year, with an average daily turnover of 130.2 billion yuan (YoY +19%) to the north and an average daily turnover of HK$37.5 billion (YoY +11%). As a result, the Shanghai-Shenzhen-Hong Kong Stock Connect achieved revenue of HK$1.2 billion, an increase of 4% over the previous year.
Active trading in the derivatives and commodities market: The average number of derivatives contracts traded per day in the first half of the year reached 1.533 million, an increase of 12% over the previous year. The main contribution was due to the growth of stock options, RMB currency futures and Hang Seng Technology Index futures. However, revenue from the derivatives sector fell 13% year over year to HK$2.9 billion, mainly due to lower margin requirements and reduced margin size.
The commodities sector benefited from increased LME transaction and settlement fees, and revenue increased 35% year over year to HK$1.4 billion.
Investment income remained steady: the company achieved net investment income of HK$2.52 billion in the first half of the year, a decrease of 5.8% year-on-year, mainly due to a decline in earnings from the external portfolio. Among them, the net return on investment of the company's capital benefited from a high interest rate environment, with a year-on-year increase of 10% to HK$0.9 billion, with an average annualized return of 5.33%. However, due to the reduction in market interest rate expectations, internal capital investment income will decrease in the second half of the year and next year. The net investment income of margin and clearing house funds decreased by 12.9% year on year to HK$1.62 billion. The average capital size decreased by 16% year on year, but the recovery in trading sentiment in the second quarter increased the margin size by 7% compared to the first quarter, with an average annualized return of 1.64%.
The target price was lowered to HK$286.7 to maintain the buying rating: We believe that as interest rate cuts are expected to pick up, the liquidity of Hong Kong stocks is expected to improve, and the IPO market has shown signs of recovery in the first half of the year. The Hong Kong Stock Exchange received 81 new listing applications, an increase of 69% over the same period last year. We expect future company performance to grow steadily with the layout of diversified product strategies, the expansion of connectivity mechanisms, and the introduction of various policies to promote market activity. Taking into account the current objective macroeconomic pressure and the decline in Hong Kong stock trading volume, the target price was lowered to HK$286.7, with room for an increase of 23.7% from the previous closing price, maintaining the buying rating.