HKEX Q1 Earnings Preview: Can IPO Revival Drive Profit Beat?

HKEX Q1 Earnings Preview: Can IPO Revival Drive Profit Beat?

As Hong Kong Exchanges and Clearing (HKEX, 00388.HK) prepares to release its first-quarter results, market attention is focused on the impact of new listing momentum and trading volumes on core revenue. After a sluggish 2024, the Hong Kong stock IPO market has shown signs of recovery in early 2025, with several prominent companies filing listing applications, including A-share giants like CATL and Hengrui Pharmaceuticals, as well as tech upstarts like Horizon Robotics. Whether this trend can translate into an earnings beat for HKEX is a key focus for investors.

IPO Revival: From Quantity to Quality

According to public data from HKEX, more than 20 companies have successfully listed by the end of March 2025, with total fundraising significantly higher than the same period last year. Among them, CATL, a global power battery giant, has drawn considerable attention with its H-share listing plan, expected to raise over $5 billion, potentially becoming one of the largest Hong Kong IPOs in recent years. Additionally, listing applications from companies such as Hengrui Pharmaceuticals and Sanhua Intelligent Controls have been accepted, indicating a stronger willingness among mainland enterprises to list in Hong Kong.

This revival is not coincidental. In 2024, HKEX introduced several reform measures, including streamlining the listing approval process, lowering the threshold for specialist technology companies, and strengthening collaboration with mainland regulators. These measures began to show results in the first quarter of 2025. According to market sources, HKEX currently has over 100 companies in its IPO pipeline, spanning emerging sectors such as biotech, artificial intelligence, and new energy, providing ample reserves for subsequent quarters.

Trading Volume: Another Engine for Earnings

Beyond IPO fees, trading volume is the largest source of HKEX's core revenue. In the first quarter of 2025, the average daily turnover (ADT) of Hong Kong stocks remained robust. According to HKEX monthly data, ADT from January to March hovered around HKD 150 billion, slightly up from the same period in 2024. This growth was mainly driven by sustained inflows from southbound capital and renewed interest in tech and financial stocks.

Notably, despite increased market volatility in early 2025, overall trading activity did not wane. For instance, trading volumes in shipping and resource stocks surged amid global trade policy changes, while AI concept stocks also attracted significant capital. This structural vibrancy provided support for HKEX's trading and clearing fees.

Earnings Forecast: Possibility of a Beat

Combining IPO and trading volume factors, market expectations for HKEX's first-quarter earnings are relatively optimistic. According to Bloomberg consensus estimates, HKEX's Q1 net profit is expected to grow approximately 10% to 15% year-over-year, primarily driven by a substantial increase in IPO-related revenue. However, some analysts point out that if IPO approval progress falls short of expectations or market volatility leads to lower trading volumes, earnings may only meet expectations.

HKEX's earnings structure is also evolving. In recent years, revenue from derivatives, data services, and technology investments has been increasing, helping to smooth the impact of spot market fluctuations. For example, in 2024, HKEX launched several new derivative contracts, including the MSCI China A50 Connect Index Options, which posted strong trading volumes in Q1 2025, contributing incremental revenue.

Risks and Challenges

Despite the positive outlook, HKEX faces multiple challenges. First, global macroeconomic uncertainties, such as the Fed's rate path and geopolitical risks, could affect investor risk appetite and dampen trading volumes. Second, the sustainability of the mainland listing boom depends on A-share market performance and regulatory policy direction. Additionally, HKEX must contend with competition from exchanges in Singapore and Shanghai, particularly in attracting international listings.

From a valuation perspective, HKEX's current P/E ratio is around 30 times, near the historical median. If Q1 results beat expectations, the stock may see a recovery; otherwise, it could remain range-bound. Investors should closely monitor management's guidance during the earnings call, especially any updates to the full-year IPO target.

Conclusion

Overall, HKEX's Q1 2025 results are likely to benefit from both the IPO revival and steady trading volumes, with a relatively high probability of an earnings beat. However, the market has partially priced in this expectation, and the real surprise may come from the efficiency of converting the IPO pipeline and the growth potential of the derivatives business. For long-term investors, HKEX remains a strategically important hub connecting China and global capital markets, but short-term volatility warrants caution.