CICC: Maintain outperform rating on HKEX (00388), target price at 500 Hong Kong dollars.

CICC released a research report stating that it basically maintained the earnings forecast for HKEX (00388) at 25e/26e, introducing a profit of 17.9 billion Hong Kong dollars in 27e. Current trading at 33x/31x 26e/27e P/E, maintaining the target price of 500 Hong Kong dollars unchanged, corresponding to 37x/35x 26e/27e P/E and a 12.6% upside potential; maintaining an outperform industry rating. Key points of CICC are as follows: Forecasting a year-on-year decline of -1% and a quarterly decline of -24% in 4Q25 earnings HKEX plans to disclose its 4Q25 performance on February 26th: the bank predicts that 4Q25 revenue will be up 4% year-on-year and down 15% quarter-on-quarter to 6.61 billion Hong Kong dollars. Excluding investment income, core business revenue is expected to be up 13% year-on-year and down 13% quarter-on-quarter to 5.81 billion Hong Kong dollars, with earnings expected to be down 1% year-on-year and 24% quarter-on-quarter to 3.73 billion Hong Kong dollars; total annual revenue is forecasted to be up 27% year-on-year to 28.46 billion Hong Kong dollars, with earnings up 31% year-on-year to 17.15 billion Hong Kong dollars. The marginal decline in spot and derivative trading activity, while commodities trading remains high, is expected to result in a 13% increase year-on-year and a 13% decrease quarter-on-quarter in core fee income for 4Q. 1) Spot: ADT of Hong Kong stocks in 4Q25 is expected to be up 23% year-on-year and down 20% quarter-on-quarter to 229.8 billion Hong Kong dollars, with southbound ADT down 35% year-on-year and 31% quarter-on-quarter to 105.7 billion Hong Kong dollars, accounting for 23.0% of Hong Kong stocks, while northbound ADT remains flat year-on-year and down 14% quarter-on-quarter to 231.1 billion yuan, accounting for 6.6% of A shares; 2) Derivatives: Overall ADV down 2% year-on-year and 2% quarter-on-quarter to 1.61 million contracts, with stock index down 14% year-on-year and up 3% quarter-on-quarter to 753,000 contracts, and single stock options up 10% year-on-year and down 6% quarter-on-quarter to 860,000 contracts; 3) Commodities: LME ADV up 21% year-on-year and up 14% quarter-on-quarter to 805,000 contracts; 4) IPO: 48 IPOs completed in 4Q, with financing amount up 201% year-on-year and 24% quarter-on-quarter to 97.6 billion Hong Kong dollars, totaling 115 companies for the year, with a financing amount up 225% to 285.8 billion Hong Kong dollars. Margin investment income declining due to external investment redemptions and dragging down investment performance, with investment income expected to be down 35% year-on-year and 25% quarter-on-quarter in 4Q. The 4Q moving average 6M/1M/overnight HIBOR decreased by 0.26ppt/1.17ppt/1.16ppt respectively quarter-on-quarter, with long-term yield rates declining and short-term cost rates rising, narrowing the margin interest spread on margin accounts. At the same time, the HKEX adjusted its margin interest rebate policy, driving up funding costs, combined with a decrease in HKEX derivative margin requirements quarter-on-quarter, potentially leading to a decline in margin investment income. While focusing on the beta of Hong Kong stocks, the bank also suggests focusing on the long-term value of asset and money allocation under double resonance. Since the beginning of the year, the ADT of Hong Kong stocks has reached 267.6 billion Hong Kong dollars, up 7% from the full year of 25, with the bank estimating that for every 100 billion Hong Kong dollars increase in ADT in 2026, the year-on-year growth rate of earnings in 2026e will increase by 2.4ppt. Looking ahead, the restructuring of assets and funds may open up profit elasticity and long-term growth space for HKEX, and suggests continuing to focus on the value of HKEX allocation. Risk warnings: Regulatory uncertainties; geopolitical risks; capital market performance below expectations.