Ge Long Hui·2025-08-06 19:19Core Viewpoint - The Hong Kong Stock Exchange (HKEX) is expected to experience significant profit growth and an upward shift in valuation due to a thriving primary and secondary market, supported by favorable policies, leading to a potential "Davis Double Play" [1][3]. Group 1: Market Position and Strategy - HKEX is a globally leading exchange group, uniquely positioned as the only exchange platform in Hong Kong, encompassing the Stock Exchange, Futures Exchange, and London Metal Exchange, which creates a comprehensive service ecosystem [1]. - The strategic direction of HKEX focuses on connecting China with the world, capital with opportunities, and the present with the future, leveraging its unique regional and regulatory resources to enhance innovation and international expansion [1]. Group 2: Financial Performance and Business Model - The company's light capital structure ensures high profit margins and return on equity (ROE), with trading fees and system usage fees contributing significantly to revenue, accounting for 53% of total income [2]. - HKEX maintains a net profit margin and EBITDA margin around 58% and 75%, respectively, while the median ROE over the past decade has reached 23% [2]. Group 3: Valuation Drivers - The dual resonance of assets and funds is driving the valuation of HKEX upward, with improved asset structure and favorable policies supporting the listing of A-share companies in Hong Kong [3]. - The influx of southbound funds, driven by the valuation discount of Hong Kong stocks and the anticipated near-term interest rate cuts by the Federal Reserve, is expected to sustain market liquidity and activity [3]. Group 4: Profit Forecast and Investment Rating - The projected net profit for HKEX from 2025 to 2027 is estimated at HKD 153 billion, 166 billion, and 178 billion, reflecting year-on-year growth rates of +17%, +9%, and +7% respectively [3]. - Given the regional monopoly advantages and high shareholder return attributes, HKEX is assigned a PE valuation of 50 times, with a target price of HKD 515, indicating a potential upside of 23% from current levels [3].