UBS: HKEX's quarterly results exceed expectations, but target price lowered to HKD 462

UBS published a report indicating that the Hong Kong Stock Exchange (00388.HK) performed better than expected in the fourth quarter of last year, with revenue increasing by 15% year-on-year to HKD 7.3 billion, approximately 9% higher than market consensus, benefiting from strong net investment income and custody fees.

The bank noted that the Hong Kong Stock Exchange's net investment income rose by 2% year-on-year and 20% quarter-on-quarter to HKD 1.2 billion, mainly due to better returns on equity securities and foreign exchange gains. Custody fees surged by 53% year-on-year to HKD 394 million, benefiting from active electronic initial public offering activities, higher share registration fees, and growth in the Shanghai-Shenzhen-Hong Kong Stock Connect.

UBS stated that the Hong Kong Stock Exchange's net profit increased by 15% year-on-year to HKD 4.3 billion, approximately 15% higher than market consensus, thanks to effective cost control. Excluding a one-time fine from the UK Financial Conduct Authority in 2025 and the recovery of legal fees in 2024, operating expenses for the fiscal year 2025 only grew by 2% year-on-year. Looking ahead, the Hong Kong Stock Exchange seeks to invest for growth while maintaining cost discipline. In the first quarter of 2026, the Hong Kong Stock Exchange is expected to face a higher comparative base.

Taking into account market activities from the first quarter to date and UBS's latest view on the federal funds rate, the bank slightly adjusted its earnings per share forecasts for 2026, 2027, and 2028, raising them by 3%, lowering them by 2%, and lowering them by 3% to HKD 13.3, HKD 12.9, and HKD 13.8, respectively. The bank adjusted its target price from HKD 471 to HKD 462, equivalent to a forecast price-to-earnings ratio of 35 times over the next 12 months, assigning a "Neutral" rating