Summary of HK Exchanges & Clearing Conference Call Company Overview - **Company**: HK Exchanges & Clearing (0388.HK) - **Industry**: Financial Services, specifically focused on stock exchange operations in Hong Kong Key Financial Highlights - **2Q25 Revenue Growth**: Expected to increase by 28% year-over-year (YoY) to HK$6,933 million, driven by strong trading activity and higher fees [1][12] - **Profit Growth**: Anticipated profit growth of 32% YoY, with earnings per share (EPS) projected at HK$3.28, up from HK$2.49 in 2Q24 [1][12] - **Average Daily Volume (ADV)**: Recorded at HK$238 billion in 2Q25, representing a 95% increase YoY but a slight decline of 2% quarter-over-quarter (QoQ) [3][9] - **Net Investment Income**: Expected to rise by 8% QoQ, attributed to a larger margin fund size despite lower interest rates [4][9] Trading Activity Insights - **Southbound Trading**: Southbound ADV surged by 154% YoY, contributing significantly to overall trading volume, with its share of total HK turnover exceeding 50% in 2Q25 [3][20] - **Northbound Trading**: Northbound ADV increased by 17% YoY but fell by 20% QoQ, indicating a mixed performance [3] - **Derivatives Trading**: ADV for derivatives decreased by 17% QoQ, reflecting a more muted trading environment [3] Market Conditions and Outlook - **Interest Rates**: The average six-month HIBOR dropped to 3.89% in 2Q25 from 4.16% in 1Q25, impacting net investment income but offset by higher margin requirements [4] - **Future Projections**: The company raised its ADV assumption for 2025 to HK$225 billion, reflecting confidence in resilient trading activities and a favorable low-rate environment [5][28] - **Earnings Estimates**: EPS estimates have been adjusted slightly upward, with expected growth of 20% YoY for 2025 and 8% for 2026 [29] Valuation and Investment Thesis - **Price Target**: Maintained at HK$500, indicating a potential upside of 16% from the current price of HK$432.60 [7][32] - **Market Sentiment**: The company is viewed as an attractive investment due to reduced financial risks, a transition towards innovation-driven growth in China, and rising IPO volumes [38][39] - **Consensus Rating**: 89% of analysts rate the stock as Overweight, reflecting strong market confidence [40] Risks and Considerations - **Geopolitical Uncertainties**: Ongoing geopolitical tensions and trade tariff concerns could impact trading volumes and market sentiment [48] - **Interest Rate Fluctuations**: Potential further declines in interest rates may negatively affect net investment income in the latter half of 2025 [29] Additional Insights - **Cost-Income Ratio**: Improved to 23% in 2Q25, down from 27% YoY, indicating better operational efficiency [12] - **Future ADV Projections**: Expected to reach HK$240 billion in 2026 and HK$265 billion in 2027, reflecting continued growth in trading activity [30][43] This summary encapsulates the key points from the conference call, highlighting the financial performance, market conditions, and future outlook for HK Exchanges & Clearing.