"Major Banks" JP Morgan: HKEX's profits were strong last quarter, maintaining an "Overweight" rating

Morgan Stanley published a report indicating that the Hong Kong Stock Exchange (00388.HK) announced a net profit of HKD 4.3 billion for the fourth quarter of 2025, a quarterly decline of 12% and a year-on-year increase of 15%, which is 19% higher than the bank's expectations. The full-year net profit for the fiscal year 2025 is HKD 17.8 billion, a 36% year-on-year increase, exceeding market expectations by 2%. The better-than-expected performance was mainly driven by revenue. The income from trading and settlement fees saw a moderate quarterly decline (-14%/-16%) compared to the bank's expectations, despite a seasonally weak trading volume (the average daily trading volume of spot stocks decreased by 21% quarter-on-quarter). This income offset the underperformance of custody fees and market data fees. Profitability benefited from a non-recurring gain of HKD 163 million from the valuation of unlisted equity investments, as well as an increase in the return on corporate funds at the Hong Kong Stock Exchange, which was sufficient to offset the impact of adjustments made since October last year to the calculation method for cash collateral interest paid to market participants by its clearing house, as well as the reduction in financing costs for non-cash collateral. These factors contributed to a strong performance in net investment income (HKD 1.2 billion, a 20% quarterly increase), which was the main reason for the better-than-expected results. Notably, even excluding the HKD 163 million gain, the pre-tax profit of HKD 5 billion still recorded a year-on-year growth of 16%, exceeding the bank's forecast by 15%. Cost control was in line with expectations, with total expenses increasing by 7% year-on-year.

Morgan Stanley stated that this was a strong quarter for the Hong Kong Stock Exchange, as profitability remained robust despite a weakening trading volume in the fourth quarter. The strong performance in net investment income was surprising and could be a source for upward adjustments in profits for the fiscal year 2026. After experiencing a seasonal lull in December 2025, trading volume has regained strength, with the average daily trading volume in the Hong Kong market reaching approximately HKD 260 billion year-to-date, accounting for the quiet market conditions during last week's Lunar New Year period. Additionally, entering 2026, the Hong Kong Stock Exchange has over 400 active listing applications, a significant increase from 297 in the third quarter of 2025. The bank expects the stock price to strengthen and maintains an "overweight" rating on the Hong Kong Stock Exchange, with a target price of HKD 540