Bank of America Securities: Lowering Hong Kong Exchange (00388) Target Price to HK$500, Strong IPO Performance in First Half but Lack of Major New Listings

Bank of America Securities released a research report stating that due to the adjustment of interest income assumptions, the profit forecast for Hong Kong Exchanges and Clearing Limited (00388) for the years 2027 to 2028 has been lowered by 2% to 10%. Using the P/B ROE valuation method, the target price has been lowered from HK$520 to HK$500, equivalent to a forecasted P/E ratio of 33 times for 2026. The "buy" rating is reiterated, as the current valuation of 25 times the forecasted P/E ratio for 2026 is still attractive. Hong Kong Exchanges and Clearing Limited will announce its financial results for the first half of 2026 in mid-August. Net profit is expected to be HK$10.3 billion, a year-on-year increase of 21%. The average daily trading volume in the second quarter reached a record high of HK$289 billion, higher than the HK$277 billion in the first quarter of this year and HK$238 billion in the same quarter last year, driving strong growth in trading and settlement fee income for the second quarter and first half of this year. The only potential quarterly decline in revenue for the second quarter may be in interest income for the Hong Kong Exchanges and Clearing Limited, but some of the impact can be offset by higher HIBOR. The report points out that the fundraising scale for IPOs and non-IPOs for Hong Kong Exchanges and Clearing Limited in the first half of this year was HK$210 billion and HK$136 billion respectively, compared to HK$107 billion and HK$174 billion in the same period last year. The overall IPO market remains strong, but the lack of large and influential transactions may raise concerns about future trading volume growth and short-term liquidity. In addition, the lack of IPOs from leading AI hardware companies is increasingly attracting attention, especially as Shanghai and Shenzhen markets are seeing multiple key technology IPOs. The bank mentioned that the People's Bank of China has expanded the Bond Connect Southbound quota to RMB 800 billion annually. Hong Kong has also introduced a gold central clearing system. These new initiatives may not necessarily significantly boost profit growth for Hong Kong Exchanges and Clearing Limited in the short term, but they will bring more business opportunities in the long term.