CICC published a research report stating that amid the continued high activity in the Hong Kong stock market, it has raised HKEX's (00388) 25e/26e earnings forecasts by 7.3%/4.0% to HK$16.5/17.3 billion. The company is currently trading at 33x/32x 25e/26e P/E. CICC maintains its outperform rating and raises the target price by 8% to HK$500 (corresponding to 38x/37x 25e/26e P/E with 15.3% upside potential).

CICC's key points are as follows:

HKEX's Q2 2025 core fee income met expectations, while profit exceeded both the firm's and market expectations

HKEX's Q2 2025 total revenue increased 33% year-on-year and 5% quarter-on-quarter to HK$7.22 billion. Excluding investment income, core fee income rose 31% year-on-year and 1% quarter-on-quarter to HK$5.54 billion. Profit increased 41% year-on-year and 9% quarter-on-quarter to HK$4.44 billion. Core fee income was in line with expectations, while profit exceeded expectations mainly due to foreign exchange gains (HK$140 million more year-on-year) and miscellaneous income (including one-time gains from lease modifications following property acquisitions) that surpassed expectations.

Cumulatively, first-half total revenue increased 33% year-on-year to HK$14.08 billion, with profit up 39% year-on-year to HK$8.52 billion.

Q2 trading and settlement income increased 40% year-on-year but decreased 5% quarter-on-quarter, with cash equities remaining active while derivatives weakened marginally from high levels

1) Cash equities: Trading and settlement income (including settlement and delivery fees) increased 65% year-on-year but decreased 4% quarter-on-quarter, corresponding to Q2 ADT rising 95% year-on-year but falling 2% quarter-on-quarter to HK$237.7 billion. Southbound ADT increased 154% year-on-year and 2% quarter-on-quarter to HK$112 billion, accounting for 23.5% of Hong Kong stocks. Northbound ADT rose 19% year-on-year but declined 21% quarter-on-quarter to RMB151.8 billion, representing 6.6% of A-shares.

2) Derivatives: Trading and settlement income increased 1% year-on-year but decreased 14% quarter-on-quarter. Stock options ADV rose 3% year-on-year but fell 20% quarter-on-quarter to 771,000 contracts. Equity index derivatives ADV declined 6% year-on-year and 15% quarter-on-quarter to 774,000 contracts, with derivatives activity moderating marginally amid volatile market conditions.

3) Commodities: Trading and settlement income increased 3% year-on-year and 2% quarter-on-quarter, corresponding to LME ADV rising 1% year-on-year and 5% quarter-on-quarter to 778,000 contracts.

4) Listing: Q2 saw 27 completed IPOs with fundraising of HK$90.75 billion (up 960% year-on-year and 386% quarter-on-quarter). As of end-July, HKEX had 207 listing applications under processing and 9 approved companies awaiting listing. High IPO activity is expected to continue.

Investment income achieved high quarter-on-quarter growth driven by both volume and price increases in margin funds and one-time foreign exchange gains

Q2 total investment income increased 31% year-on-year and 16% quarter-on-quarter to HK$1.68 billion. Excluding non-recurring foreign exchange gains, investment income rose 17% year-on-year and 6% quarter-on-quarter:

1) Margin and clearing fund income increased 25% year-on-year and 24% quarter-on-quarter to HK$1.01 billion. According to the firm's calculations, the average size of margin and clearing funds increased 17% both year-on-year and quarter-on-quarter. In the high-volatility environment, HKEX raised margin requirements, and the increase in outstanding derivative contracts drove significant scale expansion. Meanwhile, the firm estimates that margin spreads may have widened as short-term interest rates declined more than long-term rates.

2) Corporate fund income (excluding foreign exchange gains and losses) increased 6% year-on-year but decreased 19% quarter-on-quarter to HK$390 million. The year-on-year growth was mainly due to increased fund size, while the quarter-on-quarter decline was likely due to large redemptions from external portfolio funds for property purchase needs in Q2.

Risk factors: Regulatory uncertainty; geopolitical risks; capital market performance falling short of expectations.