Hong Kong Exchanges and Clearing (HKEX) saw “significant acceleration” in the fourth quarter, surpassing Morningstar Equity Research analyst Roy Van Keulen’s expectations for material improvement in the third quarter.
In results posted on Feb 27, HKEX’s revenue for 4QFY2024 ended Dec 31, 2024 grew by 33% y-o-y, compared with 9% for the full year.
Trading and clearing segments drove the strong result, growing by 56% and 70% in 4QFY2024, as “reinvigorated” stock markets boosted trading volumes and values, adds Van Keulen. In the second and third quarter, these segments still grew in the midteens.
Given the relatively fixed cost structure of exchanges, earnings per share jumped 46% in the fourth quarter, compared with 10% for the full year, he adds.
Over the trailing 12 months, the Hang Seng Index (HSI) delivered double the performance of the S&P 500 or Nasdaq 100. “This suggests to us that Hong Kong’s financial markets, which are highly leveraged to China’s economy, have awoken from their slump since early 2021,” says Van Keulen in a Feb 27 report.
Van Keulen has increased his fair value estimate on HKEX by 8% to HK$325 ($56.36) per share while maintaining his three-star rating on the exchange operator against Morningstar’s five-tier scale.
Still, this is below HKEX’s current trading price on the Stock Exchange of Hong Kong. “Shares screen as overvalued, as we do not expect the growth rates in current trading volumes to be maintained,” says Van Keulen. “Additionally, we expect geopolitical tensions between the United States and China to be a structural headwind.”
In October 2024, HKEX reported its best third-quarter earnings in three years, with net profit up 7% y-o-y to HK$3.15 billion in 3QFY2024 ended Sept 30. This was due in part to the 15 new IPOs that HKEX saw during the quarter, which raised a combined HK$42.2 billion, six times higher y-o-y.
In 2024, Hong Kong “continued to be one of the world’s most active IPO fundraising hubs”, reads HKEX’s financial statements, with 71 new listings that raised a total of HK$88.0 billion, ranking fourth globally.
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“IPO activity noticeably stepped up momentum in the second half of the year as a result of China monetary and fiscal measures announced during the period,” says HKEX.
HKEX’s cash equities market hit a record HK$620.7 billion in turnover on Oct 8, 2024, with new daily trading records across all HKEX markets in the third and fourth quarters.
HKEX’s board declared a second interim dividend payment of HK$4.90 per share, wholly in cash, which, together with the first interim dividend of HK$4.36 per share paid in September 2024, results in a full-year dividend of HK$9.26 per share.
As at 11.07am, shares in HKEX are trading HK$11 lower, or 3% down, at HK$354.
