HKEX 0388

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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.

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STOCK ALERT - Hong Kong Exchanges & Clearing lower on broker downgrade
Xinhua Newsfeed

HONG KONG (XFN-ASIA) - Shares of Hong Kong Exchanges & Clearing Ltd (HKEx) were lower in early trading, underperforming the broad market, after Morgan Stanley cut its target price for the stock of the local stock market operator by 30 pct.

At 10:35 am, the stock was trading down 1.8 hkd or 1.68 pct at 105.30 while the Hang Seng index was up 141.72 points or 0.65 pct at 21,563.47.

Morgan Stanley cut its target price for HKEx to 85 hkd from 120, while maintaining its "underweight" rating, citing overvaluation.

The US brokerage said HKEx trades at nearly 20 times earnings per share, versus approximately 10 times for overseas-listed exchanges.

HKEx shares will likely face further correction if average daily turnover of the Hong Kong market continues to shrink, it said.

Morgan Stanley previously cut its earnings per share forecast for HKEx this year by 15-16 pct.

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SING TAO DAILY

-- HKEx (0388.HK: Quote, Profile, Research, Stock Buzz) started to accept applications for the issuance of Hong Kong depository receipts by foreign enterprises this month, but it has received none so far.

Investment group Citi predicts the first will be launched by the end of the year and the likely candidate will be in the petroleum and mining sector.

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THE STANDARD

-- Despite a muted response from the local investment world, Hong Kong Mercantile Exchange chairman Barry Cheung Chun-yuen is confident that rising demand from China will ensure the success of its first item -- fuel oil contracts.

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Investors fail to bite on bank's gloomy forecast
Benjamin Scent
Tuesday, July 08, 2008

Has Morgan Stanley lost its Midas touch?

Yesterday the Wall Street bank issued a very negative report on Hong Kong Exchanges and Clearing (0388), slashing its target price by 29 percent to HK$85 from HK$120.

Morgan Stanley painted a bleak picture of the bourse operator's future, saying the stock would be valued at HK$50 in its worst-case scenario.

"Unless markets improve, the downside risk could be quite steep," Morgan Stanley analyst Anil Agarwal wrote. "This is clearly a volatile stock."

The market paid no heed to Morgan Stanley's dire prognostications. Shares of the bourse operator actually rose, inching up 0.2 percent to HK$107.30.

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MING PAO DAILY NEWS

-- Chief executive of HKEx (0388.HK: Quote, Profile, Research, Stock Buzz) Paul Chow finished exercising all his share options in the company yesterday. He is estimated to have made a profit of more than HK$300 million from his 3.28 million share options after taxes and other costs.

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JPMorgan sells down HKEx stake

JPMorgan sold 7.25 million shares of Hong Kong Exchanges and Clearing (0388) on Monday at an average price of HK$113.20, or HK$820 million in total.

The investment bank's stake in the local bourse operator fell to 4.76 percent from 5 percent, according to a filing to the Hong Kong stock exchange.

HKEx on Friday gained 2.3 percent to HK$110.50.

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Earnings Announcement Aug 13

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Vested.

HKEx may ask market on tick rule
Alfred Liu
Friday, August 01, 2008

Hong Kong Exchanges and Clearing (0388) is considering consulting the market on the relaxation of the short-selling tick rule in the next few months.

HKEx chief executive Paul Chow Man-yiu said yesterday the short-selling tick rule would be temporarily reinstated for five consecutive trading days if the stock market drops 5 percent, as required by the Securities and Futures Commission. He said the stock exchange has to further consult the market for the tick rule's relaxation as it involves potential technical problems.

The relaxation of the policy has been approved by the SFC and its implementation will be decided by the stock exchange. Chow expects the consultation to be different from the consultation on the closing time for the market.

He also said the trading of gold futures in Hong Kong will start from October 20.

Meanwhile, Credit Suisse has downgraded HKEx to "underperform" from "neutral," slashing its target price to HK$90 from HK$150.

"HKEx revenues are coming under pressure on multiple fronts," Credit Suisse wrote in a note. "Trading activity in both equity and derivative markets has faded while investment income margin and clearing house funds are expected to suffer as a result of lower deposit rates."

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Vested.

HKEx Q2 profit slips 6 pct, outlook grim

By Parvathy Ullatil HONG KONG, Aug 13 (Reuters) - Asia's largest listed bourse operator, Hong Kong Exchanges & Clearing <0388.HK>, posted a 6 percent fall in quarterly earnings Wednesday, with fading trading volumes and investment income setting the tone for a worse second half.

"Looking ahead, the second half of 2008 would be challenging," company chairman Ronald Arculli said in a statement to the stock exchange.

"Globally, there have been concerns about a credit crunch and escalating oil prices. In the mainland, the rising food prices and post earthquake reconstruction programmes could add to inflationary pressures." Renewed credit market worries, fears over a recession in the United States and the first signs of a slowdown in the Chinese economy dragged average daily equity turnover to HK$76 billion ($9.74 billion) in the second quarter, down 23 percent from the previous three months.

HKEx could suffer further in the second half of this year if July's average daily turnover of HK$63 billion is an indication.

"We are set for two quarters of decidedly negative earnings growth. Particularly the fourth quarter, which will come up for comparison against the record-setting last three months of 2007," said Sam Hilton, analyst with Fox-Pitt Cochran-Caronia (Asia).

HKEx reported a net profit of HK$1.32 billion ($169 million) in the quarter to June 30, slightly below the average forecast of HK$1.41 billion from three analysts surveyed by Reuters. The HK$1.4 billion posted by the exchange operator last year included an exceptional profit of 206 million from the disposal of an associate.

The second-quarter figure is 20 percent lower than the HK$1.65 billion recorded in the first quarter of the year.

While profits fell, HKEx still outperformed peer Singapore Exchange , which saw earnings decline 40 percent in the same quarter.

Lower volumes and turnover pushed HKEx's income from trading fees down 21 percent from the first quarter to HK$687.37 million, though it increased 21 percent from last year.

HKEx, often dubbed a global gateway for Chinese companies, recorded a tiny 9 percent growth in listing fees in the second quarter, as many companies shelved capital raising plans or slashed the size of share sales amid global market turmoil.

The exchange notched up more initial public offerings in 2007 than any previous year.

Investment income fell 4 percent from the previous year to HK$221.9 million in the second quarter, but slowed a massive 40 percent from the first quarter, hurt by falling deposit rates in Hong Kong.

WORSE SECOND HALF To combat dwindling interest in local shares, HKEx introduced Hong Kong Depository Receipts (HDRs), a platform for foreign companies to trade in the territory, in July. HKEx is also set to launch gold futures in the last quarter, to cash in on the safe-haven appeal of bullion.

But analysts are skeptical about the role these new initiatives will play in boosting revenues amid worsening conditions in global financial markets.

"I don't see this moving the needle, particularly since the gold futures are free for the first three months. HKEx tried gold futures in the nineties and it dried up from lack of interest, and thats not a very good sign either," said Fox-Pitt's Hilton.

HKEx was one the worst performing stocks on the benchmark Hang Seng Index <.HSI> in the second quarter, with its nearly 15 percent drop far exceeding the 3 percent dip in the blue chip index.

The index recorded its worst six months since 1994 in the n the first half, walloped by a credit market meltdown, a global economic slowdown and the tanking of the closely linked Shanghai Composite Index <.SSEC>.

The stock was down 2.7 percent on Wednesday before the results were announced. It is trading at 16 times price multiple to current year earnings as compared with 17.4 times for the Australian Stock Exchange , which is due to announce its second-half earnings Thursday.