Soochow Securities has issued a research report maintaining a "Buy" rating on Hong Kong Exchanges and Clearing Limited (HKEX). The Hong Kong market is experiencing active trading, and initial public offering (IPO) issuance is expected to continue its upward trend. The firm is optimistic about the simultaneous optimization of both alpha and beta factors for HKEX, which should further realize its development prospects. The bank has made minor adjustments to its previous profit forecasts, projecting HKEX's profit attributable to shareholders for 2026 and 2027 to be HKD 18.966 billion and HKD 20.512 billion, respectively. The estimated profit for 2028 is HKD 22.415 billion, corresponding to growth rates of 7%, 8%, and 9% for the respective years. The current stock price implies price-to-earnings (P/E) valuations of 27.8x, 25.7x, and 23.5x for those periods. The key points from Soochow Securities' analysis are as follows.
HKEX announced its 2025 performance results. Revenue and other income reached HKD 29.2 billion, a year-on-year increase of 30%, while net profit attributable to shareholders was HKD 17.8 billion, up 36% compared to the previous year. The full-year results set a new historical high, driven primarily by a significant improvement in investment sentiment supported by mainland policies. Increased participation from mainland investors in offshore markets led to substantial growth in the trading volume of the Hong Kong cash equity market. Hong Kong's IPO fundraising amount ranked first globally. The return on equity (ROE) for 2025 was 33.2%, an increase of 7.3 percentage points year-on-year. In the fourth quarter, revenue and other income were HKD 7.3 billion, up 15% year-on-year but down 6% sequentially. Net profit attributable to shareholders was HKD 4.3 billion, increasing 15% year-on-year but declining 12% from the previous quarter.
Trading volumes reached multiple new daily highs in 2025. The cash trading division generated revenue of HKD 14.7 billion, a 56% increase year-on-year, accounting for 50% of total revenue. The average daily turnover in the cash market surged 93% year-on-year to HKD 232 billion. The average daily turnover for Northbound and Southbound Stock Connect trading was RMB 212.4 billion and RMB 121.1 billion, rising 42% and 151%, respectively. The average daily turnover for Northbound Bond Connect was RMB 39 billion, a decrease of 6% year-on-year. The Stock Exchange of Hong Kong hosted 119 IPOs, a 68% annual increase, with total funds raised amounting to HKD 286.9 billion, up 226% year-on-year. By the end of 2025, the number of companies in the IPO pipeline had increased nearly threefold compared to the previous year.
Trading volume in the derivatives market continued its upward trend. Revenue from the equity securities and financial derivatives division was HKD 6.9 billion in 2025, an 11% year-on-year increase. This growth was mainly due to heightened trading and listing activity for structured products, alongside record-high trading volumes in the derivatives market. The average daily number of derivatives contracts traded reached 1.66 million, a 7% annual increase. The average daily turnover for products such as callable bull/bear contracts and warrants on the Stock Exchange grew 55% year-on-year to HKD 18.3 billion. The average daily number of contracts traded for futures exchange derivatives and stock exchange options changed by -6% and +22%, respectively. The number of newly listed warrants and callable bull/bear contracts increased by 50% and 27%, respectively.
The commodities division reported revenue of HKD 3.2 billion for 2025, a 14% year-on-year rise. The average daily total value of LME fee-paying transactions increased by 8% in 2025. Revenue from the data and connectivity division was HKD 2.3 billion, up 7% year-on-year, primarily driven by increased usage of the Orion/China Connect central trading gateways by exchange participants, leading to a 12% growth in network fees. Additionally, higher client usage resulted in an 8% increase in equipment hosting service fees. Revenue from company projects was HKD 2.2 billion in 2025, a 17% annual increase. Investment income from the company's internal funds was HKD 1.9 billion, up 7% year-on-year. The annualized net investment return for 2025 was 5.06%, a slight decrease of 3 basis points year-on-year. The company's average fund balance grew by 8% to HKD 37 billion.
Potential risks include a significant contraction in trading volumes for Hong Kong's cash and derivatives markets, stagnation in the progress of the mutual market access programs, and underwhelming results from LME reforms leading to declines in both volume and price.
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