Despite strong earnings, HKEx screens as overvalued: analyst

The valuation adjustment follows a standout first half of 2025, where HKEx reported a 39% surge in net profit.

Hong Kong Exchanges and Clearing Ltd. (HKEx) is trading significantly above its intrinsic value, according to Morningstar.

Morningstar analysts have raised the fair value estimate by 5% to $340, but with the stock closing at $433.80, it now screens as 28% overvalued. Morningstar has assigned the stock a two-star rating.

The valuation adjustment follows a standout first half of 2025, where HKEx reported a 39% surge in net profit and a 33% increase in revenue year over year. Operating expenses grew just 6%, which analysts attributed to elevated trading activity, sparked by Chinese government stimulus measures that ignited market momentum late last year.

Whilst results have exceeded expectations, Morningstar warned that the current trading volumes are historically high and likely unsustainable.

The second quarter marked the second-busiest trading period in HKEx’s history, topped only by the first quarter of this year. With normalisation expected, analysts project slower growth in 2026, signaling potential downside risk as investor enthusiasm cools.

Despite the near-term earnings boost, Morningstar maintains a “high” uncertainty rating for HKEx, citing its heavy reliance on China’s economic and regulatory environment.

The exchange’s position as a financial bridge between mainland China and global investors makes it vulnerable to geopolitical volatility, particularly any deterioration in China-US relations or domestic policy shifts that impact capital markets.

Financially, the company remains strong. Forecasts for 2025 include $26.6b in revenue and adjusted EPS of $13.11. HKEx trades at 33.1 times forward earnings, with a dividend yield of 2.7% and a payout ratio near 90%. It holds a wide economic moat due to its entrenched market position and integrated trading and clearing services.

From an ESG standpoint, HKEx carries a “Low” risk rating with a moderate management score of 48.1%, underperforming peers like Nasdaq and the London Stock Exchange on ESG oversight. Still, Morningstar sees no red flags that would materially alter its long-term investment thesis.