Q4 net profit beats expectations.
* Trading fees dented by sharp drop in turnover
* Turnover to nearly halve in 2009
* Shares soar nearly 10 pct after results
(Updates to add comments and outlook)
By Parvathy Ullatil
HONG KONG, March 4 (Reuters) - Hong Kong Exchanges & Clearing <0388.HK> posted a smaller-than-expected 44 percent fall in quarterly profit on tighter cost control, sending shares in Asia's largest listed bourse operator up nearly 10 percent.
But shrinking turnover signalled further profit declines, knocking HKEx's shares down by about a fifth so far this year.
"At the company level HKEx is good at controlling costs. It has been launching new products, but when the global market turnover is falling there's little they can do," said Jonas Kan, analyst with Daiwa Securities. "HKEx may be able to hold on to their share but the pie is definitely shrinking."
Battling slumping global equity markets and a drop-off in new equity issues, HKEx has posted three consecutive quarterly profit falls, and the stock, once a darling of Asian fund managers, has just two buy ratings in a poll of 18 brokerages.
HKEx reported a net profit of HK$1.2 billion ($155 million) in the quarter to Dec. 31, topping the average forecast of HK$950 million from 14 analysts polled by Reuters Estimates, but sharply lower than the HK$2.16 billion a year earlier.
For a graphic on earnings, click https://customers.reuters.com/d/graphics/HK_EXC0309.gif
Daily average turnover, a key indicator of the exchange's trading fees that in turn make up nearly a fifth of its revenue, slid 18 percent to HK$72.1 billion in 2008 as international fund flows froze amid the contagion in the global financial markets.
Other revenue streams such as investment income and information and listing fees are also seen hard hit this year.
Shares in the exchange operator, the world's second largest by market value, were 7 percent higher at HK$59.90 at 0750 GMT, compared with the broader market up 2.6 percent.
The stock plunged earlier this week after Morgan Stanley slashed its target price to HK$33 and warned that turnover could nearly halve in 2009.
TOO EXPENSIVE
Many investors have stayed away from HKEx shares because they reckon its valuation, at between 17 times and 27 times estimated 2009 earnings, is just too expensive.
That compares with Australia's ASX Ltd <ASX.AX> and Singapore Exchange's <SGXL.SI> 14 times and 19 times respectively.
"It is still expensive when other exchanges like CME <CME.O>, which have more more trading products, are trading at prospective 12.5 times," said William Lo, analyst with Ample Finance Group.
"The only positive factor that can support the stock is the China story. I would suggest holding on until the stock comes down to about HK$40."
HKEx did better than its rival Singapore Exchange <SGXL.SI> which reported a 52 percent drop in its second-quarter net profit in January, hurt by lower trading volumes and a dearth of new share issues.
New initiatives from the exchange, including the launch of Hong Kong Depository Receipts and gold futures and the pending launch of carbon futures in 2009, are unlikely to prop up the company's dented top line, according to analysts.
The exchange operator slashed its final dividend by 47 percent to HK$1.80, bringing the annual dividend down 17 percent to HK$4.29.
