Goldman Sachs·2025-06-02 15:44Investment Rating - The report maintains a "Buy" rating for Hong Kong Exchanges (0388.HK) with a 12-month target price of HK$455.00, indicating an upside potential of 13.6% from the current price of HK$400.40 [1][2][10]. Core Insights - Despite a year-to-date share price increase of approximately 35%, the stock is considered undervalued relative to strong market activity levels. The listing pipeline is growing, with over 150 companies having submitted applications to list in Hong Kong [1][22][29]. - The introduction of new products, particularly weekly expiries for index options and stock options, is expected to drive growth in average daily volume (ADV) for options. Historical data from the US and India suggests that index options ADV could outperform cash market volumes by 40 to 50 percentage points [2][44][45]. - The report projects a 15% potential upside to cash equity average daily trading (ADT) from A-share companies listing in Hong Kong over the medium term, with adjustments made to FY26-27E ADT estimates [1][23][41]. Summary by Sections Financial Projections - Revenue estimates for FY25E, FY26E, and FY27E are projected at HK$25,721.8 million, HK$26,772.8 million, and HK$28,006.3 million respectively, reflecting an increase from previous estimates [4][10]. - EPS estimates have been raised by 2%, 9%, and 10% for FY25, FY26, and FY27 respectively, driven by higher volume expectations [2][10]. Market Activity - The report notes that HKEX has regained its position among the top five global IPO venues in Q1 2025, with around US$10 billion raised from IPOs year-to-date, nearly double the amounts raised in 2023 and 2024 [22][24]. - A-share companies listing H-shares for global expansion have accounted for over half of the IPO funds raised since 2024, with approximately 630 A-share companies identified as eligible to list H-shares [23][32]. Options Market - The introduction of zero-day-to-expiry (0DTE) options is anticipated to add approximately 10% to overall options ADV, based on successful models in the US and India [44][48]. - Currently, index options represent about 20% of total options ADV at HKEX, and the report suggests that this could lead to a significant increase in overall trading activity [2][44][60].