China and US Equity Analyst

Roger Xie

10 year investment experience on public and private equity. Deep-dive fundamental research. Specialize in China and US market.

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Equity Bottom-Up

<p><a href="https://www.smartkarma.com/entities/hong-kong-exchanges-clearing" target="_blank" rel="noopener" data-smartkarma-citation="entities:490:1">HKEX (388 HK)</a> reported solid 1Q20 result: core revenue HK$4.1billion which grows 19% year-over-year. But the bottom line is hurted by investment loss of HK$47 million, which is caused by the global sell-off during the high of COVID-19 pandemic. The strong core business was led by a sharp rise in securities and derivative volumes at HKEx. Securities ADT (Average Daily Turnover) rose 69% quarter-over-quarter in 1Q20, hitting record ADT of HK$202bn. Derivative ADV rose 39% quarter-over-quarter.   Q1 2020 Stock Connect revenue reached a record quarterly high of $404 million, up 74 per cent on Q1 2019. </p><p>We remain bullish on HKEx as it serves as a gateway the capital flow to/from China mainland capital market. This has enabled HKEx having industry leading margin and pricing power. Weak investment is likely a one-off item due to COVID-19 pandemic. We forecast  Securities ADT reaches HK$140/150bn in FY 20-21E, which translates to profitability growing at 20% year-over-year in 2020. The sensitivity analysis of share price and ADT points to TP HK$280. Catalysts: the launch of MSCI China A-share Index future, China ADR returning to list in HK, and increasing stock connect trading volume.</p><figure class="editor-figure mceNonEditable"><img class="editor-image img-responsive" src="https://static-prod.smartkarma.com/images/media/000/131/875/original/image.png?1588825216" data-smartkarma-image-id="131875"></figure>

HKEX (388 HK) reported solid 1Q20 result: core revenue HK$4.1billion which grows 19% year-over-year. But the bottom line is hurted by investment loss of HK$47 million, which is caused by the global sell-off during the high of COVID-19 pandemic. The strong core business was led by a sharp rise in securities and derivative volumes at HKEx. Securities ADT (Average Daily Turnover) rose 69% quarter-over-quarter in 1Q20, hitting record ADT of HK$202bn. Derivative ADV rose 39% quarter-over-quarter.   Q1 2020 Stock Connect revenue reached a record quarterly high of $404 million, up 74 per cent on Q1 2019. We remain bullish on HKEx as it serves as a gateway the capital flow to/from China mainland capital market. This has enabled HKEx having industry leading margin and pricing power. Weak investment is likely a one-off item due to COVID-19 pandemic. We forecast  Securities ADT reaches HK$140/150bn in FY 20-21E, which translates to profitability growing at 20% year-over-year in 2020. The sensitivity analysis of share price and ADT points to TP HK$280. Catalysts: the launch of MSCI China A-share Index future, China ADR returning to list in HK, and increasing stock connect trading volume.

HKEx (388.HK): Solid Quarter with Strong Trading Volume but Weak Investment Income