Citi has released a research report, lowering its price target for Hong Kong Exchanges and Clearing Limited (HKEX: 00388) from HKD 530 to HKD 495, a reduction of 6.6%, while maintaining a "Buy" rating.

The bank notes that Hong Kong's average daily turnover (ADT) is arguably the most critical driver of HKEX's profitability and stock price, as over half of the exchange's revenue is derived from equity-related businesses. Hong Kong's ADT nearly doubled year-on-year in 2025 to HKD 250 billion, increased further to HKD 283 billion in the first half of 2026, and reached HKD 307 billion in July.

Citi believes multiple structural factors in Hong Kong support sustained growth in trading activity, particularly driven by a vibrant initial public offering (IPO) market. The firm suggests that the growth in Hong Kong's ADT may prove more resilient than expected, with Citi's forecasts exceeding market consensus by 3-11%.

Following valuation downgrades year-to-date, the stock trades at a 2027 fiscal year forecast price-to-earnings (P/E) ratio of 26 times (compared to a historical average of 32 times), making the valuation look attractive. However, Citi states that despite upward earnings revisions this year, HKEX shares have been largely flat year-to-date due to a lower P/E ratio. This could reflect: 1) cautious earnings growth prospects with a high base, as the current market consensus anticipates only a 3% compound annual growth rate (CAGR) for earnings from fiscal 2026 to 2028, with a corresponding 3% CAGR for ADT; and 2) uncertainty over the earnings outlook from long-term growth plans. Consequently, the bank has cut its price target to HKD 495, based on a 31x P/E ratio for fiscal 2027 and an assumed ADT of HKD 300 billion.

Under a bull case scenario, the target price is HKD 605, based on a 36x P/E ratio (including a first-order bias) for fiscal 2027 expected earnings and an assumed ADT of HKD 330 billion.