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.