Hong Kong Exchanges and Clearing (HKEx), Asia's largest listed bourse, posted a 79 percent surge in its first quarter earnings as daily turnover leap.

But despite the strong results, shares of HKEx fell 1.69 percent to close at HK$151.20 yesterday as investors were cautious about the bourse outlook.

The quarterly earnings hit HK$1.65 billion, up from HK$922.5 million a year earlier, but down 24 percent compared with the HK$2.16 billion booked in the fourth quarter of last year.

The trade volume surged sharply, the average daily turnover value on the bourse rose 87 percent to HK$98.4 billion in the first quarter, compared with HK$52.6 billion a year before. But it also dropped from HK$134 billion in October to December.

Revenue related to market turnover rose 63 percent to HK$1.35 billion, accounting for nearly 60 percent of the total revenue of HK$2.28 billion.

Listing fees, accounting for only 8.4 percent of the bourse's total revenue, rose to HK$1.9 billion compared with HK$1.4 billion a year before. The city's market has endured a slowdown in new listings, with about 10 companies withdrawing or postponing their initial public offerings (IPOs) so far this year, and just 10 companies listing on the mainboard.

Ronald Arculli, chairman of the HKEx, said in a statement that Hong Kong has been unavoidably affected by global financial woes stemming from the US credit crisis. And low investor confidence was reflected in the lower average daily turnover in the first quarter.

"The slowdown of the US economy and fears of a worsening situation are likely to continue," he said in the statement.

Dickie Wong, a director at Friedmann Pacific Investment, said that the earnings growth of the HKEx may slow down in the second half as the trading volume is expected to drop, but he sees a positive outlook for the bourse.

"Foreign firms are allowed to list on the bourse via depositary receipts starting in July," he said.

Trading at the current level, Wong expects a price-to-earnings (PE) ratio of 20 times the earnings forecast for 2008. "The PE ratio of the HKEx is level with the NASDAQ," Wong said.

Compared with HKEx's Asian peers, Australia's stock exchange ASX Ltd is trading at 17 times forwards earnings, and the Singapore Stock Exchange is roughly 21 times.

Wong concluded that the valuation of the HKEx is becoming more reasonable with strong earnings growth. "Investors may buy the shares at the HK$150 level, and I see strong support at the HK$145 level."

(HK Edition 05/15/2008 page3)