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

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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

Equity Bottom-Up

*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