Vested. From UOB-Kay Hian:-
Current price reflects ADT of about HK$90b
Shares of HK Exchanges and Clearing (HK Exchanges) has plummeted over 30% from its recent high in early May. The decline was attributed to the derating of other major exchanges and the falling average daily turnover (ADT) for the Hong Kong stock market.
De-rating for major exchanges. 2008 PE for Deutsche Boerse AG (Tic:DB1 GR) has declined from 18.1 in mid-May 08 to 12.2x currently. 2008 PEfor CME Group (Tic: CME US) has dropped from 24.4x in mid-May 08 to 20.2x currently. As a result, we have revised down our target 2008 PE for HK Exchanges from 26x to 20x PE. Note that the weighted average 2008 PE for
global exchanges stands at 16.7x.
Earnings revision. ADT fell from HK$123.33b in Jan 08 to HK$67.26b in Jun 08. ADT in Jun 08 dropped 26.2% yoy, the first yoy decline in the past 12 months. We have revised down our ADT assumption for 2008 from HK$99.0b to HK$89.7b. Our ADT assumption for 2009 has also been revised down from HK$100.8b to HK$91.3b. As a result, we revise our 2008 and 2009 earnings forecasts downward by 8% and 7% respectively.
Lower fair price. We have also cut our fair price from HK$156 to HK$107(based on 20x 2008 PE). A further cut in fair price is likely if ADT continues to stay below HK$89.7b in 2H08 or de-rating for other major exchanges continues. HK Exchanges’ turnover velocity remained at nearly 140%, the highest level since Dec 95, implying potential downside for ADT. Maintain HOLD with an entry price of HK$91.
Rumoured stabilisation fund will boost ADT. After the Chinese A-share market took a series of tumbles, expectations grew that the government would intervene in the market once again. Securities watchdogs had reportedly held an emergency meeting to discuss counter-measures on the afternoon of 12 June, according to an in-circle source.
Officials were said to be deliberating on scholars' suggestions that a stabilisation fund be established. This will have a knock-on effect on boosting the ADT of the Hong Kong stock market.