CICC has released a research report, essentially maintaining its 2025/2026 earnings estimates for Hong Kong Exchanges and Clearing Limited (HKEX) (00388) and introducing a 2027 profit forecast of HK$179 billion. Currently trading at 33x/31x 2026/2027 forward P/E, the firm maintains its target price of HK$500, corresponding to 37x/35x 2026/2027 P/E and offering 12.6% upside potential; the Outperform industry rating is also maintained. CICC's primary views are as follows:
The firm forecasts 4Q25 profit to decrease by 1% year-over-year and 24% quarter-over-quarter. HKEX is scheduled to disclose its 4Q25 results on February 26: CICC expects 4Q25 revenue to increase 4% YoY but decline 15% QoQ to HK$66.1 billion. Excluding investment income, core operating revenue is projected to rise 13% YoY and fall 13% QoQ to HK$58.1 billion, with profit down 1% YoY and 24% QoQ to HK$37.3 billion. Full-year total revenue is estimated to surge 27% YoY to HK$284.6 billion, with profit climbing 31% YoY to HK$171.5 billion.
Activity in spot and derivatives markets showed marginal sequential declines, while commodity turnover remained high. The firm anticipates 4Q core fee-based income to grow 13% YoY but drop 13% QoQ. 1) Spot markets: 4Q25 Hong Kong stock Average Daily Turnover (ADT) rose 23% YoY but fell 20% QoQ to HK$2.298 trillion. Southbound trading ADT surged 35% YoY, though it dropped 31% QoQ to HK$1.057 trillion, accounting for 23.0% of Hong Kong stock turnover. Northbound ADT was flat YoY and declined 14% QoQ to RMB 231.1 billion, representing 6.6% of A-share turnover. 2) Derivatives: Overall Average Daily Volume (ADV) decreased 2% YoY and 2% QoQ to 1.61 million contracts. Stock index derivatives fell 14% YoY but rose 3% QoQ to 753,000 contracts, while stock options increased 10% YoY but dropped 6% QoQ to 860,000 contracts. 3) Commodities: LME ADV jumped 21% YoY and 14% QoQ to 805,000 contracts. 4) Listings: 48 IPOs were completed in 4Q, with raised funds skyrocketing 201% YoY and increasing 24% QoQ to HK$97.6 billion. For the full year, the number of IPOs cumulatively rose 64% YoY to 115, with funds raised soaring 225% to HK$285.8 billion.
A decline in margin investment income, coupled with redemptions from external investments, is expected to drag on investment performance. The firm forecasts 4Q investment income to fall 35% YoY and 25% QoQ. The 4Q moving averages for 6-month, 1-month, and overnight HIBOR decreased by 0.26ppt, and increased by 1.17ppt and 1.16ppt QoQ, respectively. The narrowing margin interest spread, resulting from declining long-end yield rates and rising short-end cost rates, alongside HKEX's adjustment to its margin interest rebate policy starting in 4Q which increased funding costs, and a sequential decrease in derivative margin requirements, may collectively drive down margin investment income.
While monitoring Hong Kong stock market beta, greater focus should be placed on the medium-to-long-term allocation value arising from the dual resonance of "assets + capital." Since the beginning of the year, Hong Kong stock ADT has reached HK$2.676 trillion, up 7% compared to the full year 2025. The firm calculates that for every HK$100 billion increase in 2026 Hong Kong stock ADT, the 2026 earnings growth rate would accelerate by 2.4 percentage points. Historically, HKEX's valuation trend has largely moved in line with the Hang Seng Index, but since September, it has underperformed the index by 11 percentage points. Looking ahead, the reshaping of assets and capital could unlock HKEX's profit elasticity and long-term growth potential, suggesting investors should continuously monitor its allocation value.
Risk warnings include regulatory uncertainty, geopolitical risks, and potential underperformance of capital markets.
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