China and US Equity Analyst

Roger Xie

Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/hong-kong-exchanges-clearing" target="_blank" data-smartkarma-citation="entities:490:1" rel="noopener">HKEX (388 HK)</a> share price and Hong Kong market in general have tumbled significantly after Hong Kong government revealed the proposal to increase stamp duty on stock to 13bps from 10bps for both buy and sell transaction. The change needs to be approved by the HK Legislative Council and enacted as a law for it to be effective. We believe the real impact of stamp duty is at least 6 month away. And the increase of stock stamp duty could effectively alleviate the budget pressure at Hong Kong government due to the prolonged COVID-19 pandemic. </li>
<li>HKEx serves as the only offshore gateway to China capital market. HKEx has consistently enjoyed the superior margin and profitability, given that it can charge higher trading fee rates than other bourses. Chinese companies and investors prefer HKEx as the offshore trading venue. We don't expect this dynamic will change. In our view, HKEx for Chinese ADR listing and expanding business into lucrative derivative trading would be the game changer.  Although the higher stamp duty could moderately increase trading cost, the impact on trading volume will be small. We believe the market has over-reacted in the sell-off. On the contrary, the multi-year strategic transformation of HKEx would be much larger earning driver for upside. We recommend investors to buy HKEx during the pull-back.
</li>
<li>HKEx also reported 4Q20 net income of HK$2,925mn, up 48% year-over-year. FY20 net income of HK$11,505mn is up 23% year-over-year. Both results are above investors' expectation. The beat was largely driven by investment income, partly offset by higher depreciation. HKEX (388 HK) January ADT (Average Daily Turnover) remains very strong, delivering amazing 136% year-over-year growth in the month. We forecast Securities ADT of HK$240bn in FY 21 (Hong Kong and Stock Connect Northbound) and reiterate HKEx TP HKD 550. 
</li>
</ul>



HKEX (388 HK) share price and Hong Kong market in general have tumbled significantly after Hong Kong government revealed the proposal to increase stamp duty on stock to 13bps from 10bps for both buy and sell transaction. The change needs to be approved by the HK Legislative Council and enacted as a law for it to be effective. We believe the real impact of stamp duty is at least 6 month away. And the increase of stock stamp duty could effectively alleviate the budget pressure at Hong Kong government due to the prolonged COVID-19 pandemic. 
HKEx serves as the only offshore gateway to China capital market. HKEx has consistently enjoyed the superior margin and profitability, given that it can charge higher trading fee rates than other bourses. Chinese companies and investors prefer HKEx as the offshore trading venue. We don't expect this dynamic will change. In our view, HKEx for Chinese ADR listing and expanding business into lucrative derivative trading would be the game changer.  Although the higher stamp duty could moderately increase trading cost, the impact on trading volume will be small. We believe the market has over-reacted in the sell-off. On the contrary, the multi-year strategic transformation of HKEx would be much larger earning driver for upside. We recommend investors to buy HKEx during the pull-back.

HKEx also reported 4Q20 net income of HK$2,925mn, up 48% year-over-year. FY20 net income of HK$11,505mn is up 23% year-over-year. Both results are above investors' expectation. The beat was largely driven by investment income, partly offset by higher depreciation. HKEX (388 HK) January ADT (Average Daily Turnover) remains very strong, delivering amazing 136% year-over-year growth in the month. We forecast Securities ADT of HK$240bn in FY 21 (Hong Kong and Stock Connect Northbound) and reiterate HKEx TP HKD 550. 



HKEx(388.HK): Transformational Strategy Should Offset the Higher Stamp Duty Fear

Silver Point

Thomas J. Monaco

Independent Insight Provider

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

*Poor Quarter: Hong Kong Exchanges &amp; Clearing (388.HK) [HKEX] reported 4Q20 earnings of HKD 2.9 bn, declining HKD 522 mn (15.6%) linked quarter. Results were challenged on many fronts, as evidenced by HKEX’ negative operating jaws during the period, whereby revenues declined HKD 210 mn (4.0%) whilst expenses jumped HKD 187 mn (13.2%)– pushing its C/I ratio higher by 480 bp to 31.4%; and*Stamp Dutied: Despite the poor showing during 4Q20, the real story for HKEX is the issue of the stamp duty which likely will impact earnings and market sentiment for the foreseeable future. Given the financial stress of the pandemic on the finances of the Hong Kong government,  on February 24, 2021 it was announced that there would be a 3 bp or 30% increase in the stamp duty to help offset the government budget deficit.

*Poor Quarter: Hong Kong Exchanges &amp; Clearing (388.HK) [HKEX] reported 4Q20 earnings of HKD 2.9 bn, declining HKD 522 mn (15.6%) linked quarter. Results were challenged on many fronts, as evidenced by HKEX’ negative operating jaws during the period, whereby revenues declined HKD 210 mn (4.0%) whilst expenses jumped HKD 187 mn (13.2%)– pushing its C/I ratio higher by 480 bp to 31.4%; and*Stamp Dutied: Despite the poor showing during 4Q20, the real story for HKEX is the issue of the stamp duty which likely will impact earnings and market sentiment for the foreseeable future. Given the financial stress of the pandemic on the finances of the Hong Kong government,  on February 24, 2021 it was announced that there would be a 3 bp or 30% increase in the stamp duty to help offset the government budget deficit.

Hong Kong Exchanges & Clearing – Hitting The Wall

*Continued Weak Great Eastern Core Returns: Great Eastern Holdings (GE.SP) [Great Eastern] reported 2H20 bottom-line results of SGD 688.5 mn, improving SGD 348.6 mn (102.5%) HOH. However, when we exclude 2H20’s net gains on sale of SGD 3.8 bn, core operating results were far from impressive at a loss of SGD 3.1 bn versus operating income SGD 217.3 mn in 1H20; and*Poor Readacross to Regional Insurers: Higher overall costs at Great Eastern during the half driven by claims and a change in contract liability increases would imply a negative readacross to AIA (1299.HK), Prudential (PRU.LN), ManuLife (MFC.CN), and of course the mainland Chinese insurers.

*Continued Weak Great Eastern Core Returns: Great Eastern Holdings (GE.SP) [Great Eastern] reported 2H20 bottom-line results of SGD 688.5 mn, improving SGD 348.6 mn (102.5%) HOH. However, when we exclude 2H20’s net gains on sale of SGD 3.8 bn, core operating results were far from impressive at a loss of SGD 3.1 bn versus operating income SGD 217.3 mn in 1H20; and*Poor Readacross to Regional Insurers: Higher overall costs at Great Eastern during the half driven by claims and a change in contract liability increases would imply a negative readacross to AIA (1299.HK), Prudential (PRU.LN), ManuLife (MFC.CN), and of course the mainland Chinese insurers. 

Oversea Chinese Banking Corp. – Great Eastern HOH Operating Results Flop

*New Household Investors For HKEX:  SAFE is likely to make various changes to the current regulations which to allow greater individual participation in stock incentive schemes of overseas listed companies with the removal of quotas on F/X purchases. Enabling greater participation by mainland Chinese in outbound investments could be highly  supportive Hong Kong Exchanges &amp; Clearing (388.HK) [HKEX] trading volume going forward; and  *New CEO Should Focus On Mainland China: We are hopeful that the new appointed CEO Nicolas Aguzin (effective May 24, 2021) doesn’t allow himself to get distracted by his former swashbuckling colleagues from J.P. Morgan Chase &amp; Co. (JPM.US) at HKEX and their absurd deal making and that he can just focus on meeting both near and long-term targets.

*New Household Investors For HKEX:  SAFE is likely to make various changes to the current regulations which to allow greater individual participation in stock incentive schemes of overseas listed companies with the removal of quotas on F/X purchases. Enabling greater participation by mainland Chinese in outbound investments could be highly  supportive Hong Kong Exchanges &amp; Clearing (388.HK) [HKEX] trading volume going forward; and  *New CEO Should Focus On Mainland China: We are hopeful that the new appointed CEO Nicolas Aguzin (effective May 24, 2021) doesn’t allow himself to get distracted by his former swashbuckling colleagues from J.P. Morgan Chase &amp; Co. (JPM.US) at HKEX and their absurd deal making and that he can just focus on meeting both near and long-term targets.

Hong Kong Exchanges & Clearing – China, Not Deals Are Way Forward

ASEAN Insight Provider, CrossASEAN Research

Angus Mackintosh

ASEAN Insight Provider

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

<a href="https://www.smartkarma.com/entities/thai-beverage-pcl" target="_blank" data-smartkarma-citation="entities:3656:1" rel="noopener">Thai Beverage (THBEV SP)</a> announced its 1Q2020 results last week, which saw the company beating expectations in achieving a strong rebound in profits, with a significant improvement to margins for the beer business due to cost controls. This has confounded the more skeptical commentators out there. Our channel checks with the packaging industry suggest a gradual recovery ahead.
Along with the results announcement, <a href="https://www.smartkarma.com/entities/thai-beverage-pcl" target="_blank" data-smartkarma-citation="entities:3656:1" rel="noopener">Thai Beverage (THBEV SP)</a> broke out the numbers for the BeerCo in some detail and outlined the company's strategy for the spin-off over the long-term. The growth potential for the BeerCo looks appealing given the company's geographical coverage and "champion" brands. It has also indicated that there may be the potential for regional acquisitions in South East Asia. 
We see the spin-off of the beer business as a positive catalyst for <a href="https://www.smartkarma.com/entities/thai-beverage-pcl" target="_blank" data-smartkarma-citation="entities:3656:1" rel="noopener">Thai Beverage (THBEV SP)</a>, although this may be dampened by a holding company discount. Even taking this into account, we see significant upside for the company. More details below the fold.

Thai Beverage (THBEV SP) announced its 1Q2020 results last week, which saw the company beating expectations in achieving a strong rebound in profits, with a significant improvement to margins for the beer business due to cost controls. This has confounded the more skeptical commentators out there. Our channel checks with the packaging industry suggest a gradual recovery ahead.
Along with the results announcement, Thai Beverage (THBEV SP) broke out the numbers for the BeerCo in some detail and outlined the company's strategy for the spin-off over the long-term. The growth potential for the BeerCo looks appealing given the company's geographical coverage and "champion" brands. It has also indicated that there may be the potential for regional acquisitions in South East Asia. 
We see the spin-off of the beer business as a positive catalyst for Thai Beverage (THBEV SP), although this may be dampened by a holding company discount. Even taking this into account, we see significant upside for the company. More details below the fold. 

Thai Beverage (THBEV SP) - More Clarity With Beer

Singapore

Singapore Exchange Limited owns and operates Singapore's Securities and derivatives exchange and their related clearing houses.  The Company also provides ancillary securities processing and information technology services to participants in the financial sector.

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SGX (SGX SP)

HKEx(388.HK): Transformational Strategy Should Offset the Higher Stamp Duty Fear

HKEx serves as the only offshore gateway to China capital market. We believe the market has over-reacted on higher stamp duty news in the sell...

Roger Xie

Hong Kong Exchanges & Clearing – Hitting The Wall

HONG KONG EXCHANGES & CLEARING: HKEX reported a 15.6% QOQ decline in 4Q20 earnings, given the period's negative operating jaws. The story is the...

Thomas J. Monaco

Oversea Chinese Banking Corp. – Great Eastern HOH Operating Results Flop

OVERSEA CHINESE BANKING CORP: Great Eastern reported hefty 2H20 core operating losses. Higher overall costs HOH imply a negative readacross to...

Thomas J. Monaco

Hong Kong Exchanges & Clearing – China, Not Deals Are Way Forward

HONG KONG EXCHANGES & CLEARING: SAFE is making changes to regulations and allow greater individual participation in stock incentive schemes. We...

Thomas J. Monaco

Thai Beverage (THBEV SP) - More Clarity With Beer

Thai Beverage released some better than expected results last week and we see the spin-off of the beer business as a positive catalyst, despite a...

Angus Mackintosh

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