China Securities Co.,Ltd.: Maintains "buy" rating on Hong Kong Exchanges and Clearing Limited (00388) with a target price of HK$543.

China Securities Co., Ltd. issued a research report stating that it maintains a "buy" rating on the Hong Kong Stock Exchange (00388) with a target price of HKD 543. Overall, the expectations of the Federal Reserve cutting interest rates, continued inflow of southbound funds, and valuation advantages are expected to collectively support the high activity levels of the Hong Kong stock market in the fourth quarter. Based on this, the company continues to be optimistic about the maintenance of market sentiment and trading activity, and there is still some expectation gap in the current stock price of the Hong Kong Stock Exchange. Since April, the overall valuation of the Hong Kong Stock Exchange has been on a recovery trend after experiencing a significant decline. The core driver of this trend benefits from the high average daily turnover of the Hong Kong stock market in the first three quarters of the period and the continuous inflow of southbound funds. As of October 10, 2025, the PE (TTM) of the Hong Kong Stock Exchange was 36.49 times, ranking at the 72.15%/71.85%/47.43% percentiles in the past 1/3/5 years. The company expects that the performance of the Hong Kong Stock Exchange in the third quarter can still achieve high growth, and it can further digest the current valuation to a position with high investment safety margin. Looking at the valuation performance of the Hong Kong Stock Exchange since 2010, when the trading activity in the Hong Kong stock market is hot, a high ADT often indicates a more optimistic expectation for the current performance and medium to long-term growth prospects of the Hong Kong Stock Exchange. The central PE of the Hong Kong Stock Exchange is also expected to rise with ADT, and the Hong Kong Stock Exchange has a relatively high upward elasticity compared to the Hang Seng Index during the overall upward trend of the Hong Kong stock market. The company has updated its profit forecast based on the market conditions in the first three quarters of 2025: it is expected that the company's Q3 revenue and other income will reach HKD 7.911 billion, an increase of +47.26% year-on-year, and the net profit attributable to the parent company will reach HKD 4.824 billion, an increase of +53.38% year-on-year; the revenues for 2025/2026/2027 are expected to increase by +27.94%/+5.93%/+1.17% year-on-year to HKD 28.625/30.321/30.675 billion, and the net profit attributable to the parent company is expected to increase by +40.88%/+8.62%/+2.13% year-on-year to HKD 17.902/19.444/19.857 billion. Based on the current market trading situation, it is expected that the Hong Kong stock market will maintain a high level of activity in the fourth quarter mainly due to the following three factors: first, the Federal Reserve's monetary policy shift providing liquidity support. The Federal Reserve restarted interest rate cuts in September 2025, and the dot plot indicates that further interest rate cuts are expected within the year. This preemptive interest rate cut usually helps improve liquidity environment for emerging markets, especially for the Hong Kong stock market, and the marginal improvement in liquidity brought about by this will continue to support the market. Second, the continued influx of southbound funds adds momentum. Since the beginning of 2025, the net inflow of southbound funds has exceeded RMB 1 trillion, reaching a historical high, and it is expected that the net inflow will continue to trend. This growth is due to the undervalued advantage of the Hong Kong stock market and the liquidity spillover effect from the active A-share market. Mainland investors actively participating in the Hong Kong stock market through the Stock Connect program show recognition of the long-term investment value of Hong Kong stocks and provide continuous incremental funding for the market. Third, the significant valuation advantage of Hong Kong stocks remains. Even after the previous surge, the valuation of Hong Kong stocks is still at historically low levels. Taking the Hang Seng Index as an example, as of October 10, its PE-TTM is about 11.95 times, at the 64th percentile level in the past 20 years. Compared to the 14.24 PE ratio of the Shanghai and Shenzhen 300, the "valuation gap" effect of Hong Kong stocks is still prominent and remains attractive to global capital, including southbound and overseas funds.