The Chinese government’s stimulus measures set the Hong Kong Exchanges and Clearing (HKEX) up for a “strong last quarter”, says Morningstar Equity Research analyst Roy Van Keulen.
In an Oct 24 note, Van Keulen is maintaining both his HK$300 ($50.97) fair value estimate and his three-star rating on the exchange operator — against Morningstar’s five-tier scale.
That said, Van Keulen thinks HKEX’s shares “screen as slightly overvalued at current prices”. Like the Singapore Exchange S68 , HKEX is also listed on its own exchange.
HKEX reported its best third-quarter earnings in three years on Oct 23, with net profit up 7% y-o-y to HK$3.15 billion in 3QFY2024 ended Sept 30. This was due in part to the 15 new IPOs that HKEX saw during the quarter, which raised a combined HK$42.2 billion, six times higher y-o-y.
The largest debut on HKEX — not just during the quarter but for three years — is Chinese home appliance-maker Midea, which raised US$4.6 billion ($6.07 billion) in September. It also marked the world’s second-largest IPO so far this year.
HKEX remains “highly leveraged” to China’s economy, says Van Keulen, which makes the current stimulus measures “a welcome relief”. “Since many companies listed on the exchange do most of their business in mainland China, trading activity has been weak for the exchange in recent years as China’s economy slumped. In particular, this resulted in lower share prices and reduced trading activity for companies in the Hang Seng Index.”
See also: SGX to launch Singapore Depository Receipts for Hong Kong stocks within 4Q2024: source
The Hang Seng Index underperformed most other major stock market indexes in recent years, slumping around 40% between its most recent peak in 2021 and the stimulus announcements.
However, China’s commitment to providing additional support for its economy and struggling residential property sector has seen the Hang Seng Index rally strongly, says Van Keulen, boosting trading volumes and values.
“The exchange looks to have recovered from its recent slump in trading activity, with the third quarter showing high-single-digit annual revenue growth, similar to the prior quarter,” says Van Keulen.
See also: Midea raises US$4 bil in upsized Hong Kong listing
“Given the third quarter included only a week of post-announcement trading activity, we expect the fourth quarter to be materially stronger than the third quarter,” he adds.
Shares in HKEX closed HK$3.20 lower, or 1.02% down, at HK$311.60 on Oct 24.
