Hong Kong Exchanges (0388.HK)_ 1Q25 First Take_ in-line; Buy

Summary of Hong Kong Exchanges (0388.HK) 1Q25 Results Company Overview - Company: Hong Kong Exchanges and Clearing Limited (HKEX) - Ticker: 0388.HK Key Financial Highlights - Earnings Per Share (EPS): Reported at HK$3.23, representing a 38% year-over-year (yoy) increase and 2% above Goldman Sachs estimates (GSe) [1][6] - Revenue: Total revenue was HK$6,857 million, slightly above GSe by 2%. Revenue excluding investment income was 6% below GSe [1][6] - Net Profit After Tax (NPAT): Increased by 37% yoy to HK$4,077 million, 2% above GSe [1][6] - EBITDA: Reported at HK$5,254 million, 2% higher than GSe, with an EBITDA margin of 77% [6] - Effective Tax Rate: 16%, consistent with GSe [1][6] Revenue Breakdown - Investment Income: Approximately HK$1,361 million, 10% higher than expectations, driven by an increase in HK margin fund size [6] - Trading Volumes: - Cash equity Average Daily Turnover (ADT) increased by 144% yoy - Hong Kong derivatives Average Daily Volume (ADV) rose by 25% yoy - London Metal Exchange (LME) ADV increased by 6% yoy [6] - Depository Fees: Noted a decline, contributing to the revenue miss excluding investment income [6] Cost Analysis - Operating Expenses (OPEX): Excluding depreciation and amortization (D&A), OPEX was 1% below GSe, with a 7% yoy growth [6] - Staff Costs: Decreased by 4% yoy, while non-staff costs surged by 31% yoy, primarily due to a HK$90 million fine paid to the FCA [6] Investment Outlook - Rating: Goldman Sachs maintains a "Buy" rating on HKEX with a target price of HK$378, implying a 12.7% upside from the current price of HK$335.40 [4][10] - Risks: Potential risks include increased competition from onshore capital markets, lower cash market velocity, fee pressure from reduced fees in China, and a sustained deflationary environment [9][10] Additional Insights - Market Capitalization: Approximately HK$425.2 billion (US$54.8 billion) [10] - Dividend Yield: Projected at 3.5% for the upcoming year [10] - Future Earnings Projections: Expected EPS growth to HK$10.32 by December 2024, with a P/E ratio forecasted at 25.4 [10] This summary encapsulates the key financial metrics, revenue breakdown, cost analysis, investment outlook, and additional insights regarding HKEX's performance in the first quarter of 2025.