HKEX 0388

[winston]

Vested.

STOCK ALERT - HKEx sharply lower on broker downgrades after H1 results

HONG KONG (XFN-ASIA) - Hong Kong Exchanges & Clearing Ltd (HKEx) shares were sharply lower after Goldman Sachs and Morgan Stanley cut target prices on the local stock market operator after it reported lower-than-expected first-half earnings.

At 10:30 am, the stock was down 4.55 hkd or 4.40 pct at 98.95.

Morgan Stanley downgraded HKEx to "neutral" from "overweight" and cut its target to 120 hkd from 200, citing expected lower average daily turnover in the local bourse in the next three months.

Goldman Sachs cut its target price for the stock to 126 hkd from 132 and maintained a "neutral" call to reflect lower earning forecasts for 2008-2010.

HKEx announced yesterday that its first-half net profit rose 27.5 pct to 2.97 bln hkd from a year earlier, but second-quarter earnings dropped 6 pct.

[winston]

Vested.

Hong Kong Exchanges Falls to 14-Month Low on Profit
By Chia-Peck Wong

Aug. 14 (Bloomberg) -- Hong Kong Exchanges & Clearing Ltd., which operates Asia's third-biggest stock market, fell to its lowest since June 2007 on the city's bourse after it had its first drop in quarterly profit in three years.

The shares fell 4.4 percent to HK$98.95 at 10:28 a.m. Hong Kong time, making the stock today's second-worst performer on the local benchmark Hang Seng Index, which dropped 0.1 percent.

Hong Kong Exchanges' shares have fallen 55 percent this year as the effect of the U.S. slowdown on investor confidence and economic tightening measures in China dragged the average daily trading value 47 percent lower, according to data compiled by Bloomberg. The outlook for the second half of this year is ``challenging,'' the company said yesterday.

``Given the share price's strong correlation with share index moves and volumes, and current uncertainty on both of these, we lower our recommendation to neutral,'' Nick Lord, a Hong Kong- based analyst at Macquarie Equity Market Group, said in a report today.

Lord also reduced his estimates for the company's per-share earnings by 17 percent this year and 2009, to HK$4.90 and HK$4.70 respectively. Hong Kong Exchanges said yesterday net income fell 6 percent to HK$1.32 billion ($169 million), or HK$1.23 a share, in the second quarter as the absence of one-off gains countered revenue from higher trading volume.

The trend of falling trading volumes at bourses is ``a fairly common'' one globally, Ron Arculli, chairman of Hong Kong Exchanges, said in an interview with Bloomberg Television today.

Hong Kong Exchanges' income for the current half may be HK$2.29 billion, 40 percent lower from a year earlier, Credit Suisse Group analysts Chris Esson and Frances Feng said in a report today.

[winston]

Vested. From UOB-Kay Hian:-

Heading further south
The share price of Hong Kong Exchanges and Clearing (HKEx) continued to head south since we
downgraded its rating from HOLD to SELL.

We remain very confident that HKEx’s share price will head further south based on three reasons:- a) continuous decline in stock market turnover,
b) high turnover velocity and
c) expensive valuation.

Our fair price of HK$80.80 (17% downside from current level) is based on the assumption of average daily turnover (ADT) of HK$69.70b in Aug-Dec 08.

Average daily turnover has been sliding down relentlessly since the slight rebound in Mar 08. Thus far in Aug 08, ADT is HK$61.70b. Hence, we may trim our fair price further as a result of a possible cut in earnings forecasts.

In addition, the annualised turnover velocity in Jul 08 was still high at 95% compared to the average turnover velocity of 71.3% in 2001-07 and 83.2% in 2006. Should the annualised turnover velocity come back to 2006 level (83.2%), the ADT will be HK$56b. However, should the annualised turnover velocity come back to the average 2001-07 level (71.3%), the ADT will drift down to HK$48b.

The stock is trading at 19x EV/EBITDA, which is expensive compared with the historical average of 16.4x in 2001-07. In the current bearish market with poor market sentiment, the stock could be
trading at 6.1-9.4x EV/EBITDA, implying a fair price HK$32.70-48.20 (assuming no further cuts in earnings forecasts).

[winston]

So damn smart to predict Target Price to 2 digits..

=============================================

BROKER CALL - Hong Kong Exchanges target cut to 125.1 hkd - Citigroup

HONG KONG (XFN-ASIA) - Citigroup cut its target price on Hong Kong Exchanges and Clearing Ltd (HKEx) to 125.1 hkd from 137.8 as it lowered its assumptions for average market capitalization for the Hong Kong bourse for 2008 and 2009.
HKEx operates the local stock market.

Citigroup expects the Hang Seng index to hover around 18,000 for the rest of this year and stay at only about 20,000 in 2009.

It said HKEx's third-quarter earnings will continue to fall, with average daily turnover seen at 55 bln hkd during the period, down from 95 bln a year earlier.

"We argue that overall velocity will not contract to lows of past cycles provided China's economic health remains sound as the Hong Kong market is still the only sizable route for foreign equities investors to participate in Chinese economic growth," it said.

Citigroup, however, lowered its 2009 earning estimate for HKEx by 6.7 pct.

HKEx shares ended the morning session down 3.95 hkd or 4.25 pct at 89.0.

[-dol-]

Hahaha... for the benefit of those who want to sell at HK$125... leave HK$0.10 on the table... only the lucky and/or fools sell at the top...

[winston]

Maybe real time quote will boost turnover

==============================

HKEx may provide realtime quotes free of charge

The Hong Kong Exchanges and Clearing (0388) said it may offer free dissemination of real-time stock prices online.

In order to increase market transparency and raise its profile in the mainland and boost revenue, the HKEx will issue a request for expressions of interest from the market in developing the business model, HKEx said in a statement.

The bourse will explore the feasibility of business arrangements for provision of free basic real-time HKEx market prices on one or more web portals, based both in Hong Kong and the mainland.

Currently, stock prices provided by the HKEx on its website are delayed by 15 minutes.

[-dol-]

If it means lower costs, retail investors will welcome it. Don't think it's an issue with institutional funds - they go where the opportunities are. Seems like a desperate measure.

[winston]

Small position to follow this counter. From GS:-

Valuation scenario for a potential 2-3 year double
We believe HKEx shares could potentially double, to an implied price of HK$180, in the next 2-3 years (as and when the economy reverts to an upcycle) if daily turnover rises to HK$90 bn (versus HK$79 bn year to date), based on our 3-stage DDM (first-stage growth of 15%, secondstage growth of 8.6%, terminal growth of 4%).

Fundamental long-term outlook/strategic advantage
Looking beyond cyclical fluctuations of turnover and hence HKEx’s earnings, we believe HKEx’s long-term growth prospects remain bright, supported by several structural drivers:
• gearing to the robust economic growth of China, given Chinese companies account for c.65% of stock turnover on HKEx
• HKEx being a key bourse for Chinese listings, and given the still early stage of privatization in China and arguably ample need for capital among Chinese corporates
• beneficiary of capital account liberalization in China, with domestic savings, institutional funds and sovereign funds likely to invest overseas (including HK) over time
• secular growth of structured products (e.g., warrants/CBBCs/ETFs, OTC products, and related delta hedging), which account for more than 25% of stock turnover in Hong Kong

Current view
We believe near-term macro headwinds (US/China slowdown; hyperinflation in China) and weak investor confidence amid the US financial crisis may continue to dampen trading volume and hence HKEx valuations, thus our Neutral rating and 12-month price target of HK$126, based on 24X 2009E P/E.

However, we believe HKEx’s long-term secular prospects remains intact, and we see strong recovery of turnover/earnings as and when we revert to an economic upcycle, which we expect in the next 2-3 years.

Key risks
Risks include hard landing and hyperinflation in China, sharp slowdown in the US, and regulatory suasion of A-only listing as
opposed to A-H dual listings.

[winston]

From UOB-Kay Hian:-

HKEx (388 HK/SELL/Fair: HK$46.00). HK Exchanges and Clearing (HKEx) is trading at 29x 2009 PE, which is expensive on a historical basis (needless to say we are in a bear market) and on a comparative basis (global peers are trading at 8-15x 2009 PE).

As the total market cap for the Hong Kong stock market has gone up since our last update on 28 October, we have raised our 2009 and 2010 earnings forecasts by 10% and 11% respectively. We have also raised our fair price for HKEx to HK$46.00, which is based on ADT of HK$27.4b in 2009 (based on turnover velocity of 71%, 10-year average) and
17.5x 2009 PE.

[winston]

Not vested anymore.

HKEx hit with downgrade KatherineNg

Morgan Stanley has downgraded local bourse operator Hong Kong Exchanges and Clearing (0388), asking clients to sell the stock from a previous "underweight" recommendation, as it will be severely hit by the financial turmoil.

The US bank was not alone in being bearish on the stock as Credit Suisse also yesterday slashed its profit forecast of HKEx for next year by 12 percent, ahead of Wednesday's third-quarter results announcement.

Market consensus is that HKEx net profit for this year will drop by 15 percent from a year ago. No quarterly estimate was set. Its first-half net profit surged 28 percent to HK$2.97 billion by June end.

Credit Suisse's target price for HKEx was cut to HK$65, from HK$90, while BNP Paribas downgraded its target from HK$75 to HK$68.9 on concerns the downward trend in trading activity will resume in the fourth quarter this year until early next year.

"It is expected the decline in market turnover will continue, with a 35 percent turnover dropped on a yearly basis in the coming months," said Dominic Chan, analyst at BNP Paribas, who trimmed earnings of the operator by 5 to 10 percent for 2009 to 2010.

Morgan Stanley analyst Anil Agarwal said that with HKEx clearly having the most material downside among financial stocks for the given market conditions, "earnings will clearly face all around pressure." Although velocity of turnover in HKEx has moved back to almost 150 percent - close to the peak of last year's bubble - Agarwal believes it will not be sustained.

"We expect all forms of revenue [at HKEx] to come under material pressure [that] HKEx is likely to underperform significantly," Agarwal said.

He maintained the target price at HK$75. However, in a worst-case scenario - when turnover assumption falls to HK$33 billion a day - the fair value of the HKEx stock, he said will be around HK$45.

Shares of HKEx yesterday closed at HK$74.20, down 8.4 percent from the previous day.