Hong Kong Exchanges Ends a Lackluster 2022 With a Strong Q4; Our FVE Moves to HKD 400

We maintain our wide moat rating on Hong Kong Exchanges and Clearing, or HKEx, and reduce our fair value estimate from HKD 463 to HKD 400 upon change of coverage analyst. We project double-digit EPS growth throughout our forecast horizon, with 27% growth in 2023 as market volumes rebound cyclically from a dispirited 2022, followed by growth slightly above 10% thereafter as HKEx benefits secularly from increased capital flows in and out of China through the Northbound and Southbound Stock Connect programs and other cooperative initiatives between Hong Kong and the mainland. Our fair value estimate of HKD 400 is 40 times our 2023 EPS forecast, in line with HKEx’s history though higher than the average for many other exchanges, reflecting HKEx’s unique secular growth prospects. Based on our earnings projections, it would be 25 times forecast EPS for 2027.