Resilient Growth and Upgraded Prospects: A Deep Dive into Hong Kong Exchanges and Clearing’s Q3 Performance

Date of Report: 24 October 2024
Broker Name: UOB Kay Hian

Company Overview

Hong Kong Exchanges and Clearing Limited (HKEx) owns and operates the stock exchange, futures exchange, and their related clearing houses in Hong Kong.

Stock Data

Share Price: HK$314.80
Target Price: HK$364.00
Upside: +15.6% (Previous Target Price: HK$355.00)
GICS Sector: Financials
Bloomberg Ticker: 388 HK
Shares Issued: 1,267.8 million
Market Cap: HK$399,115 million (US$51,366.8 million)
3-Month Average Daily Turnover: US$438.1 million
52-Week High/Low: HK$397.80 / HK$208.30

Price Performance

1 Month: +30.3%
3 Months: +36.0%
6 Months: +45.8%
1 Year: +14.2%
Year-to-Date: +21.6%

Major Shareholders

The Government of Hong Kong SAR: 5.8%

Key Financials (3Q24 Results)

Total Revenue: HK$5,372 million (-0.9% qoq, +5.7% yoy)
Core Revenue: HK$4,140 million (-1.8% qoq, +7.7% yoy)
Net Interest Income (NII) and Other Income: HK$1,232 million (+2.2% qoq, -0.6% yoy)
EBITDA: HK$3,926 million (-0.8% qoq, +5.9% yoy)
Net Profit: HK$3,145 million (-0.3% qoq, +6.5% yoy)
Earnings Per Share (EPS): HK$2.49 (-0.3% qoq, +6.5% yoy)
EBITDA Margin: 73.1% (+0.1 ppt yoy)
Net Profit Margin: 58.5% (+0.3 ppt yoy)

Performance Analysis

Earnings Growth: HKEX reported a 6.5% year-on-year earnings growth in Q3 2024, supported by a significant increase in average daily turnover (ADT) due to stimulus packages rolled out by China in late September.
Market Turnover: The ADT reached HK$118.8 billion, up 20.7% year-on-year, following a record-high ADT of HK$350.3 billion in the last five trading days of Q3 2024.
Revenue Growth: Revenue rose 5.7% year-on-year, driven by increased turnover and resilient NII, despite a slight miss in core revenue estimates.

Market Insights

Derivative and LME Performance: The average daily volume of derivative contracts surged 11% year-on-year to 1.48 million contracts in Q3 2024, while trading revenue from the London Metal Exchange (LME) jumped 31.7% year-on-year.
Cost Management: Operating expense growth, excluding depreciation and amortization, slowed to 4.7% year-on-year, contributing to an improved EBITDA margin.
IPO Activity: A notable increase in IPO funds raised to HK$42.2 billion in Q3 2024, with two significant IPOs expected to raise more than HK$10 billion.

Future Outlook

Earnings Revision: The broker raised the 2024 earnings forecasts by 2.8%, reflecting positive trends in headline ADT data and derivative assumptions.
Recommendation: Upgraded to BUY with a revised target price of HK$364.00, indicating a balanced risk-to-reward ratio after a recent correction in share price. The target price reflects a 34.3x 2024 forward PE ratio.

Conclusion

The report presents a positive outlook for Hong Kong Exchanges and Clearing, emphasizing its resilience and growth potential following recent market developments and robust performance metrics in Q3 2024.