CICC: Maintains outperform industry rating on HKEX (00388), target price of 500 Hong Kong dollars.

CICC released a research report stating that considering the improvement in sentiment in the Hong Kong stock market, they raised the HKEX (00388) profit forecast for 2026/2027 by +5%/+6% to HK$18.1 billion/HK$19 billion. The company is currently trading at a P/E of 29x/28x for 2026/2027. The rating of outperforming the industry and the target price of HK$500 (corresponding to a P/E of 35x/33x for 2026/2027 and a 20% upside) were maintained. CICC's key points are as follows: Performance for 2025 and 4Q25 exceeded the bank's expectations In 2025, HKEX's total revenue increased by +30% year-on-year to HK$29.16 billion, and profit increased by +36% year-on-year to HK$17.75 billion. In 4Q25, total revenue increased by +15% year-on-year/-6% quarter-on-quarter to HK$7.31 billion, excluding investment income, core fee income decreased by +17% year-on-year/-11% quarter-on-quarter to HK$6.0 billion, and profit decreased by +15% year-on-year/-12% quarter-on-quarter to HK$4.335 billion. The performance exceeded the bank's expectations, mainly due to investment income from own funds and margin, and IPO fees exceeding expectations. Trading and settlement revenue in 4Q increased by +14% year-on-year/-15% quarter-on-quarter, while IPO fees increased quarter-on-quarter 1) Spot market: Trading and settlement revenue (including delivery instruction fees) increased by +15% year-on-year/-22% quarter-on-quarter, corresponding to an ADT of +23% year-on-year/-20% quarter-on-quarter to HK$229.8 billion in 4Q. Among them, the ADT from southbound trading increased by +35% year-on-year/-31% quarter-on-quarter to HK$105.7 billion, accounting for 23.0% of the Hong Kong market, while the ADT from northbound trading remained flat year-on-year/-14% quarter-on-quarter at HK$231.1 billion, accounting for 6.6% of A shares. 2) Derivatives: Trading and settlement revenue remained flat year-on-year/-3% quarter-on-quarter, with stock index ADV decreasing by -14% year-on-year/+3% quarter-on-quarter to 753,000 contracts, and individual stock options decreasing by +10% year-on-year/-6% quarter-on-quarter to 860,000 contracts. 3) Commodities: Trading and settlement revenue increased by +27% year-on-year/+16% quarter-on-quarter, corresponding to an LME ADV increase of +21% year-on-year/+14% quarter-on-quarter to 805,000 contracts. 4) IPO: IPO fee income increased by +30% year-on-year/+15% quarter-on-quarter. In 4Q, there were 48 IPOs with a total financing amount increasing by +201% year-on-year/+24% quarter-on-quarter to HK$97.6 billion. The total new listings of bull and bear certificates and derivative warrants increased by +10% year-on-year/+1% quarter-on-quarter to 10,788. The increase in company's own fund investment income and the decrease in margin and settlement fund income were due to the increase in volume and decrease in value. Total investment income in 4Q increased by +2% year-on-year/+20% quarter-on-quarter to HK$1.22 billion 1) The company's own fund investment income increased by +68% year-on-year/+125% quarter-on-quarter to HK$572 million, with internal fund investment increasing by +91% year-on-year/+147% quarter-on-quarter, mainly due to non-recurring income of HK$163 million from the valuation realization of unlisted equity investments, and external investment income of HK$30 million. 2) Margin and settlement fund income decreased by -25% year-on-year/-15% quarter-on-quarter to HK$650 million, with the bank calculating that the average scale of margin and settlement funds in 4Q increased by +13% year-on-year/+5% quarter-on-quarter, with the decrease in income mainly due to narrowing interest spreads. Risk warning: Market trading remains sluggish; policy measures fall short of expectations; overseas liquidity is not as loose as expected; geopolitical risks.