HKEX

HK Exchanges (388) – BUY at HK$138. We have just revised down our 12-
month fair value to HK$179 (please refer to our separate note on HK
Exchanges), based on an estimated daily turnover of HK$116.9b for 2009
and a fair forward PE of 24x. It is worth noting that the SAR government
bought the shares at an average price of HK$158 last year. Given the large
government surplus and the high strategic value of the stock in the longer
term, we cannot rule out the possibility that the government will add to its
position on further weakness. We recommend investors to buy the stock if it
drops to HK$138 because at that level, the share price reflects an average
daily turnover of HK$70b in 2009, which is a very unlikely scenario. As the
DII scheme will be eventually launched, the average daily turnover is likely to
rise significantly. Thus, the stock offers very good upside for those who
believe in China’s long-term growth story.