CICC has released a research report indicating it is largely maintaining its earnings forecasts for Hong Kong Exchanges and Clearing Ltd (00388) for 2026e and 2027e. The stock currently trades at 26.6x/25.2x 2026e/2027e P/E, and the firm has reiterated its “Outperform” rating with a target price of HK$520, which corresponds to 33.3x/31.7x 2026e/2027e P/E and implies 25.4% upside potential.
HKEX's second-quarter 2026 earnings surpassed both CICC's projections and market consensus. Here are the broker's key takeaways.
HKEX's second-quarter profit beat expectations, driven by non-recurring investment gains. Total revenue rose 18% year-on-year and 4% quarter-on-quarter to HK$8.50 billion. Excluding investment income, core fee-based revenue grew 29% year-on-year and 4% quarter-on-quarter to HK$7.14 billion. Net profit climbed 21% year-on-year and 4% quarter-on-quarter to a record HK$5.38 billion, exceeding forecasts mainly due to one-off gains from the revaluation of the company's unlisted equity investments. On a cumulative basis, first-half revenue increased 19% year-on-year to HK$16.7 billion, while profit advanced 24% year-on-year to HK$10.57 billion.
Trading and clearing revenue in the second quarter rose 33% year-on-year and 2% quarter-on-quarter. While cash market trading remained buoyant, derivatives and commodities activity showed a slight sequential softening. In the cash segment, trading and clearing revenue (including CCASS fees) grew 39% year-on-year and 6% quarter-on-quarter, corresponding to second-quarter average daily turnover (ADT) of HK$289.5 billion, up 22% year-on-year and 5% quarter-on-quarter. Southbound ADT rose 10% year-on-year and 1% quarter-on-quarter to HK$123.7 billion, accounting for 21.4% of total Hong Kong turnover, while northbound ADT surged 141% year-on-year and 13% quarter-on-quarter to RMB366.1 billion, representing 7.5% of A-share turnover.
In derivatives, trading and clearing revenue increased 13% year-on-year but fell 7% quarter-on-quarter. Stock options average daily volume rose 23% year-on-year and 1% quarter-on-quarter to 950,000 contracts, while stock index futures and options ADV gained 10% year-on-year but slipped 5% quarter-on-quarter to 849,000 contracts. In commodities, trading and clearing revenue edged up 3% year-on-year but dropped 21% quarter-on-quarter, with LME ADV up 8% year-on-year but down 8% quarter-on-quarter at 837,000 contracts.
On the listing front, the second quarter saw 44 IPOs completed with total fundraising of HK$102 billion, up 12% year-on-year but down 8% quarter-on-quarter. As of end-July, HKEX had 481 listing applications under processing and 12 approved but not yet listed. The exchange continues to strengthen its efforts to attract companies from mainland China and overseas to list in Hong Kong, and CICC believes the high level of IPO activity is likely to persist.
Margin investment income faced pressure, while one-off gains provided support to overall performance. Total investment income in the second quarter fell 19% year-on-year but was flat quarter-on-quarter at HK$1.36 billion, including non-recurring gains of HK$298 million from the revaluation of unlisted equity investments. Excluding these one-off items, investment income declined 37% year-on-year and 22% quarter-on-quarter. Margin and clearing house fund returns dropped 37% year-on-year and 24% quarter-on-quarter to HK$640 million. According to CICC's estimates, the average size of margin and clearing house funds grew 23% year-on-year but fell 1% quarter-on-quarter, as declining market indices and slightly softer metals trading activity led to a sequential contraction in margin balances.
Looking at key market interest rates, the 6-month, 1-month, and overnight HIBOR averages moved by -0.21ppt, +0.09ppt, and +0.34ppt quarter-on-quarter, respectively, in the second quarter. The rise in short-end rates alongside the decline in long-end rates compressed margin spreads.
Key risks include regulatory uncertainty, geopolitical risks, and capital market performance falling short of expectations.