Hong Kong Exchanges and Clearing Earnings: Signs of Life in Trading Activity

We maintain our HKD 300 per share fair value estimate for wide moat Hong Kong Exchanges and Clearing, or HKEx, following second-quarter results. The company reported continued momentum through the half, as equity markets are showing signs of life, despite China’s economy remaining weak. Core business revenue was up 7% year over year during the quarter, a significant improvement from the 7% decline reported in the first quarter. A relatively fixed cost-base helped lift core business EBITDA margin to 74%, from 72% in the first quarter. At current prices, the exchange’s share price screens as undervalued, which we attribute to the market being overly focused on the ongoing woes of China’s economy.