Introduction to this report:
Q2 profit in a single quarter was +9% YoY/+6% month-on-month, mainly due to a recovery in trading activity. In the future, along with interest rate cuts in the US and the introduction of more market-boosting policies, Hong Kong stock investment and financing activity is expected to increase, driving the company's revenue to exceed expectations.
Key points of investment:
Maintain the “Overweight” rating and maintain the target price of HK$430, corresponding to 42xPE in 24 years. The company's revenue/net profit for the first half of '24 was HK$10.62/6.13 billion, +0.4%/-3.0% YoY, of which Q2 profit was HK$3.16 billion in a single quarter, +8.6% YoY /6.2% YoY, in line with expectations. In the future, along with US interest rate cuts and more market-boosting policies, Hong Kong stock investment and financing activity is expected to increase, driving the company's revenue growth beyond expectations. The company's net profit forecast for 24-26 was adjusted to HK$12.7/13.4/14.4 billion (previous value was HK$13.1/14.7/16.6 billion), and the target price was HK$430, maintaining an “gain” rating.
The recovery in trading activity led to an improvement in Q2 performance, and the decline in investment returns partly dragged down performance.
1) Trading activity in the Q2 Hong Kong stock market increased markedly, driven by factors such as improving the overseas liquidity environment and accelerating deepening connectivity, which contributed to the sequential improvement in the performance of the Hong Kong Stock Exchange. On the spot side, the Hong Kong market's spot ADT reached HK$121.6 billion in 24Q2, +22% month-on-month, with southbound ADT reaching HK$44.1 billion, +42% month-on-month/+47%; 2) Affected by the contraction in margin size, investment income in the first half of the year was -5.8% YoY to HK$2.52 billion, which dragged down overall results. In the context of the year-on-year increase in US dollar interest, the net return on investment of margin and clearing house funds was +0.06pct to 1.64% year over year.
In the future, along with US interest rate cuts, continued deepening connectivity, and the introduction of more market-boosting policies, Hong Kong stock investment and financing activity is expected to increase, driving the company's revenue to exceed expectations. 1) It is expected that the Federal Reserve will enter a process of cutting interest rates, and liquidity factors limiting the activity of Hong Kong stocks are expected to ease, and market turnover is expected to rise marginally; 2) In April, the China Securities Regulatory Commission announced 5 capital market cooperation measures with Hong Kong, including easing the scope of eligible products for the Shanghai, Shenzhen, and Hong Kong Stock Connect, including REITs, and incorporating RMB stock trading counters into Hong Kong Stock Connect. Furthermore, in the context of A-share balanced investment and financing, it is expected that more high-quality mainland projects will be listed in Hong Kong. We expect that US interest rate cuts and the introduction of more market-boosting policies will boost investment and financing activity in the Hong Kong market, which in turn will drive the revenue growth of the Hong Kong Stock Exchange beyond expectations.
Catalysts: The gradual implementation of policies to boost Hong Kong's capital market
Risk warning: The Hong Kong stock market fluctuates greatly; the US dollar interest rate cut process falls short of expectations