Is It Time To Reassess Hong Kong Exchanges And Clearing (SEHK:388) After Its 49% One Year Rally
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Is It Time To Reassess Hong Kong Exchanges And Clearing (SEHK:388) After Its 49% One Year Rally
011 mins
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If you are wondering whether Hong Kong Exchanges and Clearing is priced attractively right now, it helps to step back and separate short term share moves from the longer term picture of what you are paying for.
The stock last closed at HK$426.40, with a 7 day return of a 2.8% decline, a 30 day return of 4.6%, a year to date return of 2.5%, a 1 year return of 49.4%, a 3 year return of 24.2% and a 5 year return of a 1.5% decline. This gives a mix of recent momentum and longer term swings that many investors will want to unpack.
Recent news coverage has focused on Hong Kong Exchanges and Clearing as a key gateway between mainland China and global capital markets. This includes ongoing interest in its role as a listing venue for mainland companies and its position in cross border trading schemes. This context helps frame why sentiment around the stock can shift as investors reassess the appeal and risks of Hong Kong as a financial centre.
On our checklist of 6 valuation tests, Hong Kong Exchanges and Clearing currently scores 0 out of 6. Next we will look at how different valuation approaches judge the shares and then finish with a way to tie those methods together so you can read the valuation story with more confidence.
Hong Kong Exchanges and Clearing scores just 0/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.
The Excess Returns model looks at how much profit a company is expected to earn above the return that shareholders require, and then capitalises those extra profits into an estimated value per share.
For Hong Kong Exchanges and Clearing, the starting point is the balance sheet and earnings power. The current Book Value is HK$42.86 per share, with a Stable EPS estimate of HK$14.76 per share, based on weighted future Return on Equity estimates from 17 analysts. The model applies a Cost of Equity of HK$3.82 per share, which leaves an Excess Return of HK$10.94 per share.
The Average Return on Equity used in this framework is 31.33%, and the Stable Book Value is HK$47.12 per share, based on weighted future Book Value estimates from 12 analysts. Putting these inputs together, the Excess Returns model arrives at an intrinsic value of HK$254.37 per share.
Against the recent share price of HK$426.40, this indicates the stock is about 67.6% higher than the model’s intrinsic value estimate on this approach.
For a profitable company like Hong Kong Exchanges and Clearing, the P/E ratio is a useful way to relate the share price to the earnings that support it. It gives you a quick sense of how many years of current earnings you are effectively paying for each share.
What counts as a “normal” P/E depends on what investors expect for future growth and how much risk they see. Higher expected growth or lower perceived risk can support a higher multiple, while slower growth or higher risk usually call for a lower one.
Hong Kong Exchanges and Clearing currently trades on a P/E of 31.33x. That sits above the Capital Markets industry average of about 19.72x and the peer average of 12.69x, which suggests the market is putting a higher value on its earnings than on many peers. Simply Wall St’s Fair Ratio framework estimates a P/E of 12.62x for the company. This Fair Ratio is designed to be more tailored than a simple peer or industry comparison because it folds in factors like earnings growth, profit margins, risk profile, industry and market cap into a single benchmark.
Comparing the current 31.33x P/E with the 12.62x Fair Ratio points to Hong Kong Exchanges and Clearing trading at a richer level than that tailored benchmark.
Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. This simply means writing the story you believe about a company and tying that story directly to the numbers you use for fair value, revenue, earnings and margins.
On Simply Wall St’s Community page, Narratives let you set your own assumptions, turn them into a financial forecast, and instantly see the fair value that results from that story. You can then compare it with the current share price and decide whether Hong Kong Exchanges and Clearing looks attractive or not on your terms.
Because Narratives on the platform update when new information such as news or earnings is added, they can help you maintain a clear link between what is happening, the story you believe and how that translates into an updated fair value.
For example, one Hong Kong Exchanges and Clearing Narrative on the Community page might assume stronger earnings and a higher fair value, while another could assume more modest earnings and a lower fair value. Both investors are using the same tool to turn their different perspectives into clear numbers they can compare with the current price.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Companies discussed in this article include 0388.HK.
