CICC: Maintains outperform rating on HKEX (00388), with a 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 have raised their 26e/27e earnings forecast for HKEX (00388) by +5%/+6% to 18.1 billion/19 billion HKD. The current company is trading at 29x/28x 26e/27e P/E. They maintain their outperform industry rating and target price of 500 HKD (corresponding to 35x/33x 26e/27e P/E and 20% upside potential). Key points from CICC are as follows: 2025 and 4Q25 performance better than the bank's expectations Hong Kong Exchanges' total revenue in 2025 increased by 30% yoy to 29.16 billion HKD, with profits rising by 36% yoy to 17.75 billion HKD. In 4Q, total revenue increased by 15% yoy and decreased by 6% qoq to 7.31 billion HKD, with core fee income excluding investment income increasing by 17% yoy and decreasing by 11% qoq to 6.0 billion HKD, and profits increasing by 15% yoy and decreasing by 12% qoq to 4.35 billion HKD. Performance exceeded the bank's expectations, mainly due to higher-than-expected income from investments and listing fees. 4Q trading and clearing income up by 14% yoy and down by 15% qoq, listing fees increased qoq 1) Spot Market: Trading and clearing income (including delivery instruction fees) increased by 15% yoy and decreased by 22% qoq, with 4Q ADT increasing by 23% yoy and decreasing by 20% qoq to 229.8 billion HKD, with southbound ADT increasing by 35% yoy and decreasing by 31% qoq to 105.7 billion HKD, accounting for 23.0% of HK stocks, and northbound ADT remaining flat yoy and decreasing by 14% qoq to 231.1 billion HKD, accounting for 6.6% of A-shares. 2) Derivatives: Trading and clearing income remained flat yoy and decreased by 3% qoq, with stock index ADV down by 14% yoy and up by 3% qoq to 753,000 contracts, and individual stock options down by 10% yoy and 6% qoq to 860,000 contracts. 3) Commodities: Trading and clearing income increased by 27% yoy and 16% qoq, with LME ADV up by 21% yoy and 14% qoq to 805,000 contracts. 4) Listing: Listing fee income increased by 30% yoy and 15% qoq, with 48 IPOs completed in 4Q, with a financing amount up by 201% yoy and 24% qoq to 97.6 billion HKD. The total of bull and bear certificates and derivative warrants newly listed increased by 10% yoy and 1% qoq to 10,788. The company's income from own funds investment increased significantly, and income from margin and settlement fund was down yoy and qoq due to increased volume and decreased interest rates. 4Q total investment income up by 2% yoy and 20% qoq to 1.22 billion HKD 1) Income from own funds investment increased by 68% yoy and 125% qoq to 572 million HKD, with internal fund investment up by 91% yoy and 147% qoq, mainly due to non-recurring income of 163 million HKD from the valuation of unlisted equity investments. 2) Income from margin and settlement fund was down by 25% yoy and 15% qoq to 650 million HKD, with the bank's calculation showing a 13% yoy and 5% qoq increase in the average size of margin and settlement funds in 4Q, with income decreasing mainly due to narrower interest rate spreads. Risk Warning: Slow market turnover; policy measures fall short of expectations; overseas liquidity is not as loose as expected; geopolitical risks.