CICC has released a research report maintaining an "Outperform Industry" rating on Hong Kong Exchanges and Clearing (00388) with a target price of HK$500. The target implies 35x and 33x forward price-to-earnings ratios for 2026 and 2027, respectively, suggesting a 20% upside potential. The report highlights an improvement in Hong Kong stock market sentiment, leading to upward revisions of 5% and 6% in the company's 2026 and 2027 profit forecasts, now projected at HK$18.1 billion and HK$19.0 billion. The stock currently trades at 29x and 28x estimated 2026 and 2027 earnings.
Key points from the report are as follows: The 2025 full-year and fourth-quarter results exceeded expectations. HKEX's total revenue for 2025 increased 30% year-on-year to HK$29.16 billion, with profit rising 36% to HK$17.75 billion. In the fourth quarter, total revenue grew 15% year-on-year but declined 6% quarter-on-quarter to HK$7.31 billion. Core fee-based revenue, excluding investment income, increased 17% year-on-year but fell 11% sequentially to HK$6.00 billion. Profit for the quarter was up 15% year-on-year but down 12% from the previous quarter to HK$4.335 billion. The stronger-than-expected performance was primarily driven by better investment returns from the company's own funds and margin balances, as well as higher-than-anticipated listing fees.
A breakdown of fourth-quarter trading and clearing revenue shows a 14% year-on-year increase but a 15% sequential decrease. 1) Cash Equities: Trading and clearing revenue rose 15% year-on-year but fell 22% quarter-on-quarter. This corresponded to an average daily turnover increasing 23% year-on-year but decreasing 20% sequentially to HK$229.8 billion. Southbound trading turnover grew 35% year-on-year but dropped 31% from the previous quarter to HK$105.7 billion, accounting for 23.0% of Hong Kong market turnover. Northbound turnover was flat year-on-year but declined 14% quarter-on-quarter to RMB 231.1 billion, representing 6.6% of A-share market turnover. 2) Derivatives: Trading and clearing revenue was flat year-on-year and down 3% quarter-on-quarter. Stock index average daily volume decreased 14% year-on-year but increased 3% sequentially to 753,000 contracts. Single-stock option volume grew 10% year-on-year but fell 6% from the prior quarter to 860,000 contracts. 3) Commodities: Trading and clearing revenue increased 27% year-on-year and 16% quarter-on-quarter, driven by LME average daily volume rising 21% year-on-year and 14% sequentially to 805,000 contracts. 4) Listings: Listing fee income grew 30% year-on-year and 15% quarter-on-quarter. The quarter saw 48 IPOs completed, with total funds raised surging 201% year-on-year and increasing 24% from the previous quarter to HK$97.6 billion. The number of new listed callable bull/bear contracts and derivative warrants combined increased 10% year-on-year and 1% quarter-on-quarter to 10,788.
Investment income from the company's own funds saw significant growth, while income from margin and clearing fund balances declined due to increased volume but narrower interest spreads. Total investment income for the fourth quarter increased 2% year-on-year and 20% quarter-on-quarter to HK$1.22 billion. 1) Investment income from the company's own funds surged 68% year-on-year and 125% quarter-on-quarter to HK$572 million. Income from internal fund investments rose 91% year-on-year and 147% sequentially, mainly due to a non-recurring valuation gain of HK$163 million from unlisted equity investments. External investment income was HK$30 million. 2) Income from margin and clearing funds decreased 25% year-on-year and 15% quarter-on-quarter to HK$650 million. The report estimates the average balance of these funds increased 13% year-on-year and 5% quarter-on-quarter, with the decline in income attributed to narrowing interest spreads.
The report notes potential risks, including sluggish market turnover, policy measures falling short of expectations, slower-than-expected overseas monetary easing, and geopolitical risks.
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