The duo last issued a glowing report on HKEX on May 27, believing “jumbo IPOs” with fundraising above US$1 billion or HK$7.8 billion ($1.27 billion) will help the bourse become the top market in the world in 2025 in terms of IPO proceeds.
While Li and Chang had maintained their HK$440 target price on HKEX then, the duo now raise their fair value estimate by some 18% to HK$520, expecting “strong ADT growth” to drive some 9% to 25% net profit growth over FY2025 to FY2027. HKEX has a Dec 31 financial year-end.
Li and Chang project ADT at HK$220 billion in FY2025, 19% higher than the Bloomberg consensus. CGSI’s 2HFY2025 ADT forecast stands at HK$200 billion, 54% higher than the consensus' HK$130 billion.
CGSI’s higher target price is based on 40x FY2025 price-to-earnings (P/E), up from 37x previously.
‘Homecoming’
Li and Chang’s previous report emphasised a “homecoming” for US-listed China American Depositary Receipts (ADRs), “amplified by increased US regulatory attention since April”.
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The analysts anticipate a “repeat of the 2020-2022 story”, when HKEX was traded over 40x 12-month forward P/E. “HKEX outperformed the Hang Seng index significantly during the last ADR homecoming cycle, but current upside potential is relatively constrained given that most large-cap ADRs have already listed on the HKEX.”
Li and Chang see further upside potential from its current P/E of 34.5x, 0.5 standard deviations above the post-2016 average.
Year to date, HKEX’s IPO proceeds of HK$77 billion make up 48% of CGSI’s FY2025 estimate of HK$160 billion. CGSI put out this figure in March, when Li and Chang initiated coverage on HKEX.
“HKEX is on track to becoming the top market in the world in 2025 in terms of IPO proceeds, in our view. We think HKEX will highlight escalated jumbo IPO volumes and its structural ADT increase in public disclosures, which could serve as a re-rating catalyst,” they add.
HKEX reported its 1QFY2025 results on April 30, posting record quarterly revenue of HK$6.9 billion, up 32% y-o-y; and record quarterly profit of HK$4.1 billion, up 37% y-o-y.
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“Equity capital raising activities in Hong Kong saw a remarkable revival in 1Q2025,” said bourse leaders, with a total year-to-date deal value of US$20 billion as at April 25, ranking second globally after the US.
As at 4.08pm, shares in HKEX are trading HK$6 higher, or 1.45% up, at HK$419.60.
Tables: CGSI, Bloomberg
