Revenue and profit for the first three quarters of 2024 were the second-highest ever: in the first three quarters of 2024, the company achieved revenue and other earnings of HK$15.99 billion (YoY +2%), with main business revenue rising 1%, mainly due to increased volume in the spot, derivatives and commodity markets, which increased transaction and settlement fees, as well as increased LME fees, but the decrease in net margin investment income offset some of the increase. Net profit attributable to mother was HK$9.27 billion, up HK$5 million from the same period last year. It was mainly driven by an increase in trading and settlement fees in the spot, derivatives and commodity markets. Looking at various business segments, transaction fees and trading system usage fees/settlement and delivery fees/stock exchange listing fees/escrow and agent service fees/market data fees/other revenue reached HK$49.8/31.8/10.8/0.89/0.81/1.26 billion in the first three quarters of 2024, with year-on-year changes of +6%/-1%/-2%/+8%, respectively. The basic earnings per share of the company was HK$7.3. Group practice is to declare only semi-annual and full-year dividends; no dividends are proposed for the third quarter of 2024.

Connectivity transactions continued to be active: spot market revenue for the first three quarters of 2024 was HK$6.35 billion, a slight increase from HK$6.34 billion in the first three quarters of 2023. The average daily turnover of the spot market in the first three quarters of 2024 was HK$102.7 billion, up 5% year over year, mainly due to the announcement of economic stimulus measures in mainland China and the adoption of monetary easing policies by major central banks around the world, which boosted market confidence and liquidity and increased the trading activity of the spot market. The trading volume of the Shanghai-Shenzhen-Hong Kong Stock Exchange performed well in the first three quarters of this year, with an average daily turnover of 123.3 billion yuan (YoY +14%), achieving revenue of HK$1.78 billion, an increase of 4% over the previous year.

The average daily turnover of derivatives and LME maintained a strong growth trend: the average number of daily derivatives contracts reached a record high of 1.516 million in the first three quarters of 2024, an increase of 12% over the previous year, mainly due to the stimulus measures announced by mainland China. Revenue from the derivatives sector fell 12% year over year to HK$4.28 billion, mainly due to a decrease in net income from margin investments. The commodities sector benefited from increased LME transaction and settlement fees, and revenue increased 31% year over year to HK$2.1 billion.

Net investment income was affected by a decrease in the amount of margin funds and an increase in rewards: the company achieved net investment income of HK$3.73 billion in the first three quarters of 2024, a year-on-year decrease of 4%, mainly due to lower margin requirements, increased interest rebates for settlement participants on some contracts to attract trading volume, and an increase in the ratio of yen collateral for settlement participants in the first three quarters of 2024, which reduced returns. The net investment income of margin and clearing house funds decreased by 14% year over year to HK$2.32 billion, and the average capital size decreased by 13% to HK$192.5 billion year over year, with an average annualized return of 1.6%.

The target price was raised to HK$360 and the buying rating was maintained: The Hong Kong Stock Exchange showed strong performance growth during the quarter. Among them, the average daily transaction amounts of Shanghai Stock Connect and Shenzhen Stock Connect, derivatives markets, and BondConnect Northbound all reached new highs, driving revenue growth. Faced with the Federal Reserve's interest rate cut, the Hong Kong Stock Exchange's investment income may be affected, but by optimizing interconnection mechanisms, such as adding new ETF products and improving system efficiency, it has enhanced its market competitiveness and attractiveness. At the same time, the Hong Kong Stock Exchange focuses on shareholder returns through repurchases and dividend balancefree cash flowUse provides cost-effective risk-free returns and dividend rates. As a result, we raised our target price to HK$360, corresponding to 33.2x PE, an increase of 16% from the previous closing price, and maintaining our buy rating.