[Event] The Hong Kong Stock Exchange announced its 2024 interim results: revenue and other income for the first half of 2024 was HK$10.621 billion, +0.4% year over year, and net profit to mother was HK$6.125 billion, or -3.0% year over year. ROE (unannualized) in the first half of the year was 11.8%, -0.7 pct year on year. 2024Q2 achieved revenue and other income of HK$5.42 billion, +8.0% year on year, net profit to mother of HK$3.155 billion, +8.6% year over year; ROE (unannualized) for the second quarter was 6.2%, +0.3 pct year on year.
Trading rebounded sharply in the second quarter. The spot segment achieved revenue and other income of HK$4.129 billion in the first half of 2024, -1.8% year over year, accounting for 39% of revenue. The average daily trading volume of the spot market in the first half of the year was -4% year-on-year to HK$110.4 billion. Trading rebounded sharply in Q2, with an average daily turnover of HK$121.6 billion, +18% year over year and +22% month over month. The average daily turnover of the Shanghai Shenzhen-Hong Kong Stock Connect northbound and southbound was HK$130.2 billion and HK$375 billion, respectively, +19.1% and +10.9% respectively. The average daily transaction volume of Bond Connect Beixiangtong was 4.45 billion yuan, +14% year over year, a record high for half a year. The Stock Exchange issued 30 IPOs, a year-on-year decrease of 3, with a total financing amount of HK$66.5 billion, or -11% year-on-year.
The average daily turnover of futures exchange derivatives contracts reached a half-yearly high. The equity securities and financial derivatives segment's revenue for the first half of 2024 was HK$3.099 billion, -10.3% year over year, accounting for 29% of revenue. The average daily trading volume of Stock Exchange derivative warrants, bullbear securities and warrants was -19.8% year-on-year, and trading volume was -25.5%. The average daily turnover of Futures Exchange derivatives contracts and Stock Exchange options contracts was +13.9% and +10.0%. The number of newly listed warrants and bullbear certificates was -21.5% and -3.7% respectively.
Commodity segment: Commodity segment revenue and other revenue for the first half of 2024 was HK$1.405 billion, +35% YoY.
The average daily turnover of LME fee transactions in the first half of 2024 was +29% year-on-year.
Data & Connectivity Division: Revenue and other earnings for the first half of 2024 amounted to HK$1.048 billion, +2.5% YoY.
Network fees increased by 4% in the first half of 2024 due to increased sales at the new throttling rate and increased usage of China Connect's central transaction gateway.
Company projects: In the first half of 2024, the company's project revenue was HK$0.94 billion, +9.9% year-on-year. The company's capital investment income was HK$0.901 billion, with an annualized net return of 5.33%, +0.53 pct year-on-year.
The target price is HK$316.80, maintaining the “better than the market” rating. We estimate that HKEx's total operating income on 24/25/26E was HK$22.3/24.1/25.6 billion (previously HK$22.9/24.6/26.2 billion), +8%/+6% YoY; net profit attributable to HKEx shareholders was HK$12.6/13.6/14.2 billion (previously HK$13.2/14.9 billion), respectively, and +6%/+5% YoY. Using second-stage DDM to value the Hong Kong Stock Exchange, we obtained a target price of HK$316.80 (-5%), corresponding to 2024E PE, which is 31.9 times. Maintain an “better than the market” rating.
Risk warning: Hong Kong's spot and derivatives trading volume has shrunk sharply; progress in connectivity has stalled; the effects of LME reforms have fallen short of expectations, and volume and price have plummeted.