GF SEC: Maintains "Overweight" rating on HKEX (00388), fair value HK$489.09; revenue and profit for the first three quarters hit record highs.

GF SEC issued a research report maintaining an "Overweight" rating on HKEX (00388), assigning a reasonable valuation of 30x price-to-earnings (PE) for 2026, corresponding to a fair value of HK$489.09 per share. The bank expects the company's net profit attributable to shareholders to grow 16.4% and 16.1% year-on-year in 2026 and 2027, respectively, with earnings per share (EPS) of HK$16.30 and HK$18.93, respectively. For the first three quarters of 2026, HKEX's revenue and profit both hit record highs for the same period in history, with revenue and other income of HK$24.569 billion, up 12% year-on-year; profit attributable to shareholders of HK$15.427 billion, up 15% year-on-year. The bank believes that the Shanghai-Hong Kong Stock Connect and LME businesses effectively hedged the decline in cash market turnover, while listing fees and refinancing business provided core support. GF SEC's main points are as follows: Third-quarter standalone results edged down; first three quarters saw both revenue and profit hit record highs HKEX disclosed its third-quarter 2026 results, with standalone quarterly revenue and other income of HK$7.867 billion, up 1% year-on-year and down 7% quarter-on-quarter; profit attributable to shareholders of HK$4.859 billion, down 1% year-on-year and down 10% quarter-on-quarter. The quarter-on-quarter decline was mainly due to cash market turnover contracting 12% from the historical high in the second quarter of 2026, as well as HK$290 million in non-recurring investment gains recognized in the second quarter. For the first three quarters of 2026, the company's revenue and other income were HK$24.569 billion, up 12% year-on-year; profit attributable to shareholders was HK$15.427 billion, up 15% year-on-year; EBITDA margin was 80%, up 1 percentage point year-on-year. Cash market decline hedged by Shanghai-Hong Kong Stock Connect and LME In the third quarter of 2026, Hong Kong stock cash market average daily turnover (ADT) was HK$238.4 billion, down 11% year-on-year; Stock Connect ADT was HK$107.3 billion, down 30% year-on-year, dragging on trading and settlement fee income. During the same period, combined Shanghai-Hong Kong Stock Connect ADT was RMB309.7 billion, up 15% year-on-year; London Metal Exchange (LME) average daily volume was 742,000 lots, up 12% year-on-year, with commodities revenue achieving relatively fast growth; the two businesses effectively hedged the decline in cash market turnover. For the first three quarters of 2026, Shanghai-Hong Kong Stock Connect ADT was RMB332.4 billion, up 61% year-on-year; LME average daily volume was 809,000 lots, up 16% year-on-year, with cumulative growth even more significant. Listing fees and refinancing as core support According to the company's quarterly report, in the first three quarters of 2026, a total of 118 companies newly listed, raising HK$388.4 billion, doubling year-on-year and ranking second globally; third-quarter standalone fundraising was HK$176 billion, up 123% year-on-year. Projects included Zhongxuchuang's HK$61.4 billion IPO and Alibaba's HK$80 billion placement. Driven by this, listing fee income grew 35% year-on-year to HK$901 million; post-listing refinancing scale was HK$572.8 billion, up 25% year-on-year; equity-linked products raised HK$199.7 billion, up 34% year-on-year, all hitting record highs for the same period in history. Investment income breakdown Regarding margin deposit investment income, HK$2.104 billion was achieved in the first three quarters of 2026, down 19% year-on-year, mainly due to increased rebates to clearing participants. Regarding corporate funds investment income, HK$1.436 billion was achieved in the first three quarters of 2026, up 11% year-on-year. Among this, fair value appreciation of unlisted equity investments was HK$307 million, which is non-recurring income; due to redemption of external fund scale, the external portfolio contributed HK$17 million, compared with HK$237 million in the same period last year. Internal management funds investment income was HK$1.112 billion, up 5% year-on-year, with an annualized net investment return of 5.04%, up 37 basis points year-on-year. Diversified ecosystem accelerating In the third quarter of 2026, HKEX made intensive strategic progress, including launching the first offshore Chinese government bond futures, advancing the paperless market to land in November, adding Bursa Malaysia as a recognized exchange, launching the S&P 500 HKEX Tech 100 Index, and LME restarting US dollar gold futures. Risk warnings Macroeconomic downturn; geopolitical instability; intensifying competition among international exchanges, etc.