Result first take: HKEx 3QFY22 earnings below market expectation (-ve)
What’s new
- Net profit dropped 30% y-o-y to HK$2,263mn in 3QFY22, below market expectation.
- Revenue dropped 19% y-o-y to HKD4,318mn in 3QFY22, reflecting lower trading and clearing fees from lower Headline ADT; and lower ADT of Northbound Trading of Stock Connect
- Average daily turnover (ADT) of Stock Exchange in 3QFY22 dropped 41% y-o-y to HK$97.6bn, amid rising interest rate environment, inflationary pressures and ongoing geopolitical tensions
- EBITA margin dropped to 70%, 9% lower than 3Q21, attributable to higher staff costs and professional fees
Our view
- The ADT remained at the HK$88bn level in October (MTD). Investors have been waiting on the sidelines until some market concerns are tackled.
- Year to date Hong Kong average daily turnover (ADT) is at HK$121bn.
- In short term, we anticipate geopolitical tensions, RMB depreciation, interest rate hikes, and the high inflation rate to cloud the HK market in 4Q22 and 1Q23.
- In medium term, we expect the risk appetite to gradually improve after 2Q23, given our economist team expects US policy interest rate hike and RMB depreciation to end in 1Q23.
- Overall, ADT structural changes such as secondary listings, ETF Connect, MSCI derivatives, attractive valuation of the HK market vs. that of A-shares and the US, and higher Southbound participation should support a further increase in trading activities when market uncertainties ease in FY23F
- Currently recommend BUY with TP under review.
- More details after today’s earnings conference call at 5:15PM.
