Hua Yuan Securities has issued a research report initiating coverage on Hong Kong Exchanges and Clearing Limited (HKEX) with a "Buy" rating. HKEX holds a unique ecosystem position connecting "capital" and "assets," characterized by regional monopoly, scarcity, and strong commercial attributes. From 2015 to 2024, the company achieved compound annual growth rates of 6.3% and 5.8% in revenue and other income, and net profit attributable to shareholders, respectively.
In the third quarter of 2025, driven by robust growth in spot and stock options derivatives trading, HKEX delivered excellent financial performance. The brokerage forecasts net profits attributable to shareholders for 2025-2027 to be HKD 17.9 billion, HKD 20.3 billion, and HKD 22.1 billion, representing year-on-year growth rates of 37.5%, 13.1%, and 9.0%, respectively. The corresponding price-to-earnings ratios based on the current share price are 29.1x, 25.7x, and 23.6x.
Key perspectives from Hua Yuan Securities are outlined below:
Spot trading value continued to improve quarter-on-quarter. In the third quarter of 2025, the average daily turnover for equity securities products on the Stock Exchange of Hong Kong surged 150% year-on-year to HKD 267.9 billion. Within this, the average daily turnover for Southbound and Northbound Stock Connect programs grew 285% and 144% year-on-year to HKD 152.5 billion and RMB 268.7 billion, respectively, showing significant acceleration compared to the first half of 2025. As Southbound and Northbound trades incur a unilateral fee rate of only 40-50%, revenue growth from the spot business lagged behind the growth in average daily turnover. Spot revenue for the first three quarters of 2025 increased 75% year-on-year to HKD 11.1 billion, accounting for 51% of total revenue. Revenue and other income from Stock Connect programs for the first three quarters rose by HKD 1.45 billion year-on-year to HKD 3.23 billion, representing 14.8% of HKEX's total revenue during the period.
Trading value for financial derivatives showed divergence. The average daily volume of derivatives contracts traded on the Futures Exchange in the third quarter of 2025 decreased 7% year-on-year to 727,000 contracts, with the decline widening compared to the first half of the year. This, combined with an increased proportion of lower-priced Hang Seng Tech Index Futures and enhanced discounts and rebates on certain contracts to attract volume, led to a slight decline in futures derivatives trading revenue. However, the average daily volume for stock options increased 30% year-on-year, with more active trading in higher-fee options driving a 17% increase in revenue from the equity securities and financial derivatives segment to HKD 5.3 billion for the first three quarters, accounting for 24% of total revenue.
Commodities business performance remained stable. In the third quarter of 2025, revenue and other income for the commodities division, along with the average daily volume of LME's fee-paying traded metal contracts, increased by 9.5% and 3% year-on-year, respectively. The higher revenue growth relative to volume was primarily due to a 4.7% increase in LME trading and clearing fees implemented at the beginning of the year.
Investment performance saw a decline. Net investment income for HKEX in the third quarter of 2025 fell 16% year-on-year to HKD 1.02 billion, mainly due to the redemption of substantial funds for property purchases, which reduced the company's own investable funds, alongside a slight decrease in the return on investment for margin and clearing house funds.
HKEX continues to advance strategic initiatives. In leveraging its China advantage, HKEX put into operation its first LME-approved warehouse facilities in Hong Kong in July 2025. To enhance market vitality, the exchange implemented the first phase of reducing the minimum tick size for securities in August 2025, initially targeting securities priced between HKD 10 and HKD 50. In October, optimizations to the margin collateral arrangement took effect, adjusting the interest calculation method for cash collateral paid by its clearing houses to participants and reducing financing fees for non-cash collateral. Also in October, the company established a subsidiary in Dubai to manage commodity pricing and promote sustainable metal premium pricing, and announced plans to launch Hang Seng Biotechnology Index futures. Regarding technology enablement, the company published a consultation paper in July 2025 on shortening the settlement cycle for the Hong Kong spot market.
IPOs contributed 1.7% to the average daily spot turnover in the first three quarters of 2025, with large-cap internet and technology stocks being core contributors to trading value. A total of 69 new listings were successfully completed on HKEX in the first three quarters, raising an aggregate of HKD 188.3 billion, marking the highest level since 2022. As of the end of September 2025, the number of IPO applications in the pipeline reached 297, more than three times the 84 applications at the end of 2024. The brokerage believes that as the number of new listings continues to increase, the contribution of new stocks to average daily turnover is expected to rise further.
The top ten stocks by spot trading value on HKEX in the first three quarters of 2025 included seven internet and technology companies: Alibaba Group, Tencent Holdings, Xiaomi Corporation, Meituan, SMIC, BYD Company, and Kuaishou Technology. These seven companies collectively contributed 30% of the total market average daily turnover, serving as the primary drivers of trading activity. The remaining three stocks among the top ten were HKEX and Ping An Group from the financial sector, and Pop Mart from the new consumption sector, accounting for 1.4%, 1.3%, and 1.3% of the spot trading value in the first three quarters, respectively.
Risk factors include a significant decline in market trading volume, a substantial drop in equity indices, and regulatory policies falling substantially short of expectations.