CGSI raises HKEX target to $520 with surge in IPO pipeline

CGSI raised its earnings forecast for HKEX across the board. 

Hong Kong Exchanges and Clearing (HKEX) is poised for significant upside in 2025, with CGS International raising its target price for the bourse operator to $520, citing a sharp rebound in trading volumes and a surge in jumbo initial public offerings (IPOs).

“We see HKEX as undervalued,” CGSI analysts Laura Li and Michael Chang wrote in a research note. “We project ADT at HK$220bn in 2025F, 19% higher than Bloomberg consensus,” they added, referring to average daily turnover.

The analysts attributed their bullish forecast to “materially improved US-China tariff tensions,” a “strong jumbo IPO pipeline,” and “sustainable Southbound ADT contribution.”

According to CGSI, HKEX could reclaim its place as the top global IPO venue in 2025, driven by a wave of large offerings. The report cited 14 potential or completed jumbo IPOs, those raising more than US$1b, in the first half of the year, including Chery Automobile, JD Industrials, and CATL.

“We expect a sustained increase in jumbo IPOs to be a re-rating catalyst,” the analysts noted, estimating FY25 fundraising to return to 2019 and 2021 levels. Year-to-date IPO proceeds have already reached $77b, nearly half of CGSI’s full-year forecast of $160b.

CGSI raised its earnings forecast for HKEX across the board. “We lift our FY25–27F EPS by 8.8–9.9% to reflect higher ADT assumptions,” the report stated. The revised target price of $520, up from $440, implies a 40x FY25 P/E, or “+1.5 s.d. above post-2016 average.”

The upgrade is supported by strong earnings momentum, with net profit expected to grow 25% year-on-year in FY25 to $16.4b.

Despite the upbeat financial outlook, CGSI noted HKEX’s lagging LSEG ESG rating. The exchange received a C+ combined score in 2023, the lowest since at least 2014. “This was in contrast with its LSEG 2023 ESG score of B+, which is the highest score since 2014,” the analysts observed. They attributed the dip largely to a sharp drop in the Controversies Score.

Nonetheless, other ratings agencies offered a more favourable view: MSCI and S&P gave HKEX an AA rating, and a 97th percentile ranking, respectively.

Whilst the outlook is bullish, CGSI warned of downside risks, including “lower rates hurting investment income and escalating regulatory risks hurting the IPO market.”

However, they maintained that re-rating catalysts such as “more high-quality IPOs and better-than-expected Hang Seng Index performance” could drive further upside.

HKEX shares closed at $420.4 on June 10, with CGSI’s new price target implying a 23.7% upside.