CICC: Maintains "Outperform" rating for Hong Kong Stock Exchange (00388) with a target price of HKD 520.

CICC released a research report stating that it essentially maintains its earnings forecasts for HKEX (00388) for 2026 and 2027. The company is currently trading at 26.6x/25.2x 2026e/2027e P/E, maintaining the "Outperform industry" rating and a target price of HKD 520 (corresponding to 33.3x/31.7x 2026e/2027e P/E and a 25.4% upside potential). HKEX's earnings for Q2 2026 exceeded the firm's and market expectations. CICC's main points are as follows: HKEX's earnings for Q2 2026 exceeded the firm's and market expectations. HKEX's total revenue for Q2 2026 increased by 18% year-on-year and 4% quarter-on-quarter to HKD 8.5 billion. Excluding investment income, the main fees revenue rose by 29% year-on-year and 4% quarter-on-quarter to HKD 7.14 billion. Earnings increased by 21% year-on-year and 4% quarter-on-quarter to HKD 5.38 billion, reaching a record high and surpassing the firm's and market expectations, primarily due to non-recurring income resulting from the revaluation of the company's unlisted equity investments. Cumulatively, total revenue for the first half of the year increased by 19% year-on-year to HKD 16.7 billion, and earnings rose by 24% year-on-year to HKD 10.57 billion. Revenue from trading and settlement in Q2 increased by 33% year-on-year and 2% quarter-on-quarter, with spot trading remaining active while derivatives and commodities experienced a slight quarter-on-quarter decline. 1) Spot: Trading and settlement revenue (including settlement instruction fees) rose by 39% year-on-year and 6% quarter-on-quarter. Correspondingly, the average daily turnover (ADT) rose by 22% year-on-year and 5% quarter-on-quarter to HKD 289.5 billion, with southbound ADT increasing by 10% year-on-year and 1% quarter-on-quarter to HKD 123.7 billion, accounting for 21.4% of Hong Kong stocks. Northbound ADT increased by 141% year-on-year and 13% quarter-on-quarter to HKD 366.1 billion, accounting for 7.5% of A shares; 2) Derivatives: Trading and settlement revenue increased by 13% year-on-year but fell by 7% quarter-on-quarter. Individual stock options' average daily volume (ADV) increased by 23% year-on-year and 1% quarter-on-quarter to 950,000 contracts, while stock index futures and options ADV rose by 10% year-on-year but fell by 5% quarter-on-quarter to 849,000 contracts; 3) Commodities: Trading and settlement revenue increased by 3% year-on-year but fell by 21% quarter-on-quarter, with LME ADV rising by 8% year-on-year but declining by 8% quarter-on-quarter to 837,000 contracts; 4) IPOs: In Q2, 44 companies completed their IPOs, raising HKD 102 billion (up 12% year-on-year but down 8% quarter-on-quarter). As of the end of July, HKEX was processing 481 IPO applications, with 12 approved and awaiting listing. The company continues to enhance its efforts to attract mainland and overseas companies to list in Hong Kong, and the firm believes that the high level of IPO activity is likely to continue. Margin investments under pressure, one-time income supports overall performance. Total investment income for Q2 decreased by 19% year-on-year and remained flat quarter-on-quarter at HKD 1.36 billion. Among this, the revaluation of unlisted equity investments contributed non-recurring income of HKD 298 million. Excluding the impact of non-recurring gains and losses, Q2 investment income decreased by 37% year-on-year and 22% quarter-on-quarter: 1) Margin and clearing fund income decreased by 37% year-on-year and 24% quarter-on-quarter to HKD 640 million. According to the firms calculations, the average size of margin and clearing fund for Q2 increased by 23% year-on-year but fell by 1% quarter-on-quarter, with a decline in the margin size quarter-on-quarter due to a market index downturn and a marginal decrease in the activity level of metal trading. 2) From the performance of major market interest rates, the 6M/1M/overnight HIBOR moving averages for Q2 2026 changed by -0.21ppt/+0.09ppt/+0.34ppt quarter-on-quarter, with short-term rates rising and long-term rates falling, leading to a narrowing of the margin interest spread. Risks Regulatory uncertainty; geopolitical risks; capital market performance may underperform expectations.