While HKEX is “in for a strong year”, Morningstar Equity Research analyst Roy Van Keulen believes current heightened activity will moderate with escalating trade tensions emerging late in 2Q2025 and weighing on market sentiment.
Van Keulen is maintaining his HK$325 fair value estimate for “wide-moat” HKEX, with a two-star rating against Morningstar’s five-tier scale.
“The China and US trade disputes, including the tariffs announced in April, are not reflected in the first-quarter result. While the Hang Seng Index rallied sharply since the announcement, we expect persistent tensions to temper share prices and trading activity for the rest of fiscal 2025,” he writes in a July 7 note.
Van Keulen thinks HKEX shares “screen as 25% overvalued” at current prices. “While China's stimulus reinvigorated trading, we think the market now overestimates the durability of recent volume growth.”
See also: HKEX saw 71 IPOs in 2024 raising HK$88 bil, ranking fourth globally
Big picture
HKEX is “uniquely positioned” as the capital gateway between China and the rest of the world, writes the Morningstar analyst. “However, this also leaves the exchange highly leveraged to China's economy.”
See also: CGSI sees ‘more share price upside’ for HKEX, raising target price by 18%
The ongoing geopolitical tension is likely to weigh on flows and sentiment in the medium term, he adds.
Even so, HKEX’s model is “resilient”, says Van Keulen. “The cash and equity segments generated ebitda margins of over 80% in past downturns. This is underpinned by strong network effects, a vertically integrated model and monopoly licences, which all support its wide-moat rating.”
The Edge Singapore
Van Keulen’s Oct 24, 2024 note put HKEX on a HK$300 fair value estimate with a three-star rating.
Peer comparison
More recently, HKEX’s 1QFY2025 revenue rose 30% y-o-y and 7% q-o-q, driven by 60% and 56% y-o-y growth in trading and clearing, respectively.
Van Keulen now expects HKEX to post FY2025 revenue of HK$25 billion, up 12% y-o-y.
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Van Keulen even compares HKEX to its peers Intercontinental Exchange (ICE), Australian Securities Exchange (ASX) and Singapore Exchange (SGX).
Compared to SGX’s $15.41 trading price, Van Keulen has a $14 fair value on the Singaporean bourse operator, along with a three-star rating.
SGX’s recent outperformance has divided analysts, even after FY2025 securities market turnover rose by 18% y-o-y to $336.4 billion while securities daily average value (SDAV) grew by 27% y-o-y to $1.3 billion.
Following the July 9 data, RHB Bank Singapore lowered its target price slightly to $15.90 with a “neutral” call, while Citi Research kept “sell” with a $13.10 target price.
SGX, which has been on a tear with the benchmark Straits Times Index hitting record highs, will release its financial results for 2HFY2025 ended June 30 on Aug 8.
HKEX is expected to release its 1HFY2025 results in August.
Shares in HKEX closed 1.4% lower at HK$411.60 on July 10.
Charts: Morningstar Equity Research
