Hong Kong's monopoly bourse is set to see a nearly 19% increase in net income for the year ended Dec. 31, 2023, analyst estimates show.

The pace of growth could, however, drop in the next two years amid prolonged global economic uncertainties.

Net income at Hong Kong Exchanges and Clearing Ltd. (HKEX) is likely to grow 18.9% to HK$11.98 billion for 2023, compared to a decline of 19.6% seen in 2022, according to analyst estimates compiled by S&P Global Market Intelligence. The bourse's annual income growth is then forecast to slow to 5.0% and 8.2% in 2024 and 2025, respectively. Its dividend is expected to grow in line with its net income through 2025, off the back of a 19.5% decline in 2022.

HKEX is scheduled to release its fourth-quarter and full-year results Feb. 29.

The bourse's stronger net investment income from margin funds will drive its revenue and net income growth in 2023, CFRA Equity Research said. It expects net investment income to moderate in 2024, assuming interest rates stabilize.

"Market uncertainties may persist at least until the first quarter of 2024, keeping the cash market weak," CFRA Equity Research said in a Feb. 18 note.

Uncertainties over global economic growth, geopolitics and a prolonged downturn in mainland China's property market have hit investor sentiment in Hong Kong and other markets. HKEX's benchmark Hang Seng Index was down 13.8% in 2023 following a 15.5% decline in 2022, according to its 2023 year-end market report. At the same time, Hong Kong slipped to sixth place among major stock exchanges in the world by the dollar value of total IPO funds raised, from third in 2022, according to a ranking by KPMG, representing a further drag on one of its main revenue streams.

Fees charged for cash market trading, based on the amount of turnover, form the dominant part of revenue of HKEX, while other incomes include fees charged for derivative trading and IPO, as well as investment income. The bourse's headline average daily turnover, including cash and derivative, fell 12% year over year in the first three quarters of 2023, according to HKEX, somewhat offset by a turnaround in investment income of HK$1.18 billion, which helped a net profit growth of 31%.

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IPO pipeline

Still, HKEX is likely to see increased IPO activities in 2024 and beyond, given a healthy IPO pipeline and its position as a preferred capital-raising venue for mainland China companies, analysts said. It has received 16 IPO applications so far this year, on top of the 67 brought forward from 2023, with five listings already completed on the main board in January, according to a Jan. 31 update.

"Backed by good market breadth and a large investor pool, we think HKEX will remain a preferred capital-raising venue for China and ASEAN corporates, solidifying HKEX's position as one of the leading IPO market globally," said CFRA Research.

Chen Yongren, deputy head of Hong Kong investment banking Team at China International Capital Corp., previously told Market Intelligence that a lot of Chinese companies are likely to consider launching an IPO in Hong Kong. "There is a rich IPO pipeline in the city, building a solid foundation for a better year for the Hong Kong IPO market in 2024," said Yongren.

Meanwhile, Hong Kong-based brokerage CLSA forecast an earning per share (EPS) decline of 1% for HKEX in 2024, followed by a growth of 4% in 2025. Sliding into home base, HKEX may have to "try to address investor concerns on lackluster average daily turnover, bearishness towards China assets, and HKEX's valuation premium," the brokerage said in a Feb. 23 note.