Group 1 - Morgan Stanley reports that Hong Kong Exchanges and Clearing (HKEX) will continue to experience strong revenue and profit growth until Q3 2025, driven by a robust average daily trading volume (ADV) of HKD 286 billion and high turnover rates [1] - The report maintains an "overweight" rating for HKEX with a target price of HKD 508, citing increased trading activity in the Hong Kong capital markets as evidence of a financial system cycle bottoming out [1] - For Q3 2025, Morgan Stanley expects core business growth to remain strong, with trading fees and clearing fees increasing by 75% and 97% year-on-year, respectively [1] Group 2 - Morgan Stanley slightly raised its average daily trading volume assumptions for HKEX from 2025 to 2027, while lowering net investment income forecasts for 2025, 2026, and 2027 by 0.2%, 5.5%, and 5.6%, respectively, due to new margin guarantee arrangements effective from Q4 2025 [2] - The firm anticipates a decline in interest rates in 2026 due to Federal Reserve rate cuts, predicting a drop in net investment income of 18% in 2026 and 4.3% in 2027 [2] - Consequently, Morgan Stanley has increased its earnings per share (EPS) forecast for HKEX in 2025 by 5.8%, while maintaining EPS estimates for 2026 and 2027 largely unchanged [2]

Core Viewpoint - Morgan Stanley reports that the strong revenue and profit growth of Hong Kong Exchanges and Clearing Limited (HKEX) is expected to continue until 2025, driven by a robust average daily trading volume (ADV) of HKD 286 billion and high liquidity [1] Group 1: Financial Performance - In Q3, HKEX's trading fees and clearing fees increased by 75% and 97% year-on-year, respectively, indicating sustained strong growth in core business [1] - Revenue and profit for HKEX are projected to grow by 47% and 59% year-on-year, respectively, in Q3 2025, with EBITDA margin expected to increase by 7 percentage points to 80% [1] Group 2: Investment Income - Morgan Stanley anticipates a potential decrease in HKEX's net investment income due to a high base from Q2 foreign exchange gains and the ongoing low interest rate environment, estimating a 22% quarter-on-quarter decline in Q3 2025 [1] - The net investment income forecasts for FY 2025, 2026, and 2027 have been slightly adjusted downwards by 0.2%, 5.5%, and 5.6%, respectively, to account for new margin guarantee arrangements effective from Q4 2025 [2] Group 3: Earnings Forecast - The earnings per share (EPS) forecast for HKEX in 2025 has been raised by 5.8%, with a projected year-on-year growth of 32%, while the EPS for 2026 and 2027 is expected to remain relatively unchanged [2] - A decline of 18% in net investment income is anticipated for 2026, followed by a 4.3% decrease in 2027, influenced by expected interest rate cuts by the Federal Reserve [2]

Core Viewpoint - Morgan Stanley has upgraded its outlook on Hong Kong Exchanges and Clearing (HKEX) due to sustained high average daily trading volumes influenced by capital flows, southbound trading, IPOs, and improvements in the A-share market [1] Group 1: Market Performance - HKEX's average daily trading volume is expected to remain high, with projections for fiscal years 2025 to 2027 reaching HKD 235 billion, HKD 250 billion, and HKD 252 billion respectively [1] - The market's visibility regarding HKEX's mid-term prospects typically leads to a revaluation of its PE multiples [1] Group 2: Financial Projections - Morgan Stanley has raised its target price for HKEX from HKD 400 to HKD 500 and upgraded its rating from "Neutral" to "Overweight" [1] - The bank has adjusted its earnings per share estimates upward by 5% to 16% in line with the anticipated higher average daily trading volumes [1] - For the first half of the year, HKEX's profit is projected to be HKD 4.93 billion, with the second quarter expected to contribute HKD 2.399 billion [1]

Core Viewpoint - Morgan Stanley's research report indicates that Hong Kong Stock Exchange's average daily trading volume remains high, influenced by capital flows, southbound trading, IPOs, and improvements in the A-share market [1] Group 1: Trading Volume Forecast - Based on the higher average daily trading volume, the company forecasts that the trading volume for fiscal years 2025, 2026, and 2027 will reach HKD 235 billion, HKD 250 billion, and HKD 252 billion respectively [1] - The earnings per share estimate has been raised by 5% to 16% accordingly [1] Group 2: Market Valuation and Rating - The market's visibility regarding the mid-term outlook for Hong Kong Stock Exchange typically leads to a revaluation of the PE multiple [1] - The target price has been increased from HKD 400 to HKD 500, and the rating has been upgraded from "Neutral" to "Overweight" [1]