not vested
Hong Kong Exchanges & Clearing (388 HK) - Trading close to peak valuation
We forecast 2021e average daily turnover (ADT) to increase 20% y/y to HK$155bn (vs. HK$144bn previously), which has factored in positive drivers.
Share price has risen to peak valuation multiple of 43.7x 21e P/E.
Over the past decade, HKEX has been trading in a range of 21-47x 12-month forward PE. Its valuation multiple exceeded 40x three times – 46x in 2Q15, 42x in 1Q18 and 43x in 3Q20.
Comparing with valuation multiple expansion in 2Q15 and 1Q18, which were mainly driven by rising ADT, the current valuation multiple expansion would be supported by rising ADT and expectations of more IPOs and product offerings.
We are raising our earnings estimate by 10% and 4% in 20e and 21e respectively.
We expect return on equity to rise from 22% last year to 27% in 21e. Our Fair Value estimate is revised upwards to HK$480, based on a revised ADT assumption and 45x 12-month forward PE, which is close to peak valuation multiple. HOLD.
Source: OCBC