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spk02: Hello, ladies and gentlemen. Welcome to Futu Holdings' first quarter 2022 earnings conference call. At this time, all participants are in the listen-only mode. After management's prepared remarks, there will be a question and answer session. Today's conference call is being recorded. If you have any objections, you may disconnect at this time. I'd now like to turn the conference over to your host for today's conference call, Daniel Yuan. Chief of Staff and Head of IR at Voodoo. Please go ahead, sir.
spk04: Thanks, Operator, and thank you for joining us today to discuss our first quarter 2022 earnings results. Joining me on the call today are Mr. Lace Lee, Chairman and Chief Executive Officer, Arthur Chen, Chief Financial Officer, and Robin Xu, Senior Vice President. As a reminder, today's call may include four looking statements. which represent the company's belief regarding future events, which by their nature are not certain and are outside of the company's control. Forward-looking statements involving hearing risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from those containing any forward-looking statements. For more information about the potential risks and uncertainties, please refer to the company's filings with the SEC, including its registration statement. With that, I will now turn the call over to Leif. Leif will make his comments in Chinese, and I will translate.
spk03: The natural flow for nine consecutive seasons has contributed more than 50% to our new real estate customers. In the Hong Kong market, many small and medium-sized brokerage businesses are facing challenges due to the decrease in the activity of their customers. In order to benefit from the deep-rooted brand image, the leading product experience, and the stable financial situation, these brokerages have attracted high-quality customers and assets, and the customer speed has been improved. In the first quarter, Thank you all for joining us today. As of quarter end, we had 1.3 million paying clients, representing a 68% growth year over year.
spk04: In the first quarter, we added approximately 82,000 paying clients, and we are well on track to deliver on our prior guidance of adding 200,000 paying clients in 2022. This is also the ninth consecutive quarter to which organic growth contributed over 50% as new paying clients. In Hong Kong, client acquisition picked up as we leveraged our strong brand positioning, leading product offering, and sound financial standing to attract clients and assets from smaller-sized brokers suffering from plummeting client engagement amid a weak equities and IPO market. Our quarterly paying client retention rate returned to the pre-headline use level of over 98%. Client retention in Singapore improved for every quarter since we launched the business, as we optimized client acquisition channels and incentives through rapid iteration.
spk03: Although the market sentiment is relatively low, Despite dampened market sentiment,
spk04: users continued to engage actively with a growing portfolio of content, products, and services in our ecosystem. Average DAUs exceeded 1 million, and average user time spent was around 30 minutes for all trading days in March. Our DAU also exceeded 1.2 million for the first time.
spk03: The rapid decline in the market has led to a decrease in customer assets, which has delayed the market's strong entry into the gold market and eliminated the impact of some market fluctuations. It is worth mentioning that although the market fell, the total customer assets in Singapore still achieved a growth of 15% in comparison. We continue to see the inflow of high-quality customers in Singapore. For example, the customers we acquired in January of this year, their shareholding assets amounted to nearly double in March.
spk04: Total client assets declined 16% year over year and 5% quarter over quarter. The sequential decline can be attributed to sharp market depreciation, partially offset by robust net asset inflow across markets. Notably, total client assets in Singapore increased by 15% sequentially, despite challenging mark-to-market impact. We continue to see an inflow of high-quality clients in Singapore. For clients that we acquired in January, for example, their average asset balance almost doubled by March.
spk03: 尽管融资业务余额显著上升,但Modding业务余额环比下降。 主要原因是在市场下跌的背景中,客户降低了杠杆。 本季度总交易量为1.3万亿港币,环比增长8%,其中每股交易量占比64%。 The exchange rate of Chinese technology stocks and steel ETFs has increased, leading to an increase in the exchange rate of US stocks and Hong Kong stocks. The exchange rate of US stocks has increased by 9% and the exchange rate of Hong Kong stocks has increased by 11%. At the same time, the share of the stock and stock market in Hong Kong has exceeded 6% and 12% for the first time, which has also led to a further increase in the average commission rate. 在第一季度,我们持续扩充交易产品品类,包括在香港推出VIP货,为新加坡的AI客户提供两种新的算法订单类型,以及在澳大利亚提供美股、澳股和ETP交易功能。 While we observed a meaningful uptake in security funding balance, margin financing balance slipped sequentially as our clients deleveraged some of their margin positions amid market turmoil.
spk04: Total trading volume was 1.3 trillion Hong Kong dollars, at 8% quarter over quarter, of which U.S. trading constituted 64%. Higher trading turnover in China tech names, as well as leveraged and inverse ETFs, contributed to the 9% and 11% sequential growth in U.S. and Hong Kong stock trading volumes. Meanwhile, our market share in Hong Kong futures and options trading climbed to over 6% and 12% respectively for the first time, driving a further increase in blended commission rates. In the first quarter, we continued to broaden our trading product offerings by launching VIX futures in Hong Kong to new types of algo order for accredited investors in Singapore, as well as US and Australian stocks and ETPs in Australia.
spk03: The total wealth management of our clients is 2.1 billion Hong Kong dollars, which is 59% of the total growth rate, and 11% of the total return on investment. As of the end of this year, more than 13% of our clients hold wealth management products. We continue to face the need for our clients in Singapore to introduce new types of financial products, including Currency Funds and Tai Chi Funds. We cooperated with the New York Mellon Fund and the Yifangda Fund in Hong Kong to provide our clients with
spk04: Total client assets in wealth management were HK$21 billion, up 59% year-over-year and 11% quarter-over-quarter. As of quarter-end, over 13% of our paying clients held wealth management positions. We continue to expand fund offerings for Singapore clients, including money market funds and dividend funds. We collaborated with BNY Mellon Investment Management and E-Fund Hong Kong to provide diversified asset allocation strategies for clients with Kutu Securities International Hong Kong.
spk03: At the end of this year, we have 258 IPO branching and investor-related customers and 459 ESOP customers, respectively growing by 70% and 130%. During the first quarter, we added 59 ESOPs
spk04: solutions clients, including MetLife Technology and 4Paradigm. We also expanded our enterprise services footprint in Singapore by participating in several high-profile ETF IOPs. Next, I'd like to invite our CFO Arthur to discuss our financial performance.
spk06: Next, Lee Van Daniels. Please allow me to walk you through our financial performance in the first quarter. All the numbers are in Hong Kong dollar unless otherwise noted. Our total revenue was $1.6 billion, down 26% from $2.2 billion in the first quarter of 2021. Brokerage commission handling charging income was $968 million, a decrease of 27% year-over-year and an increase of 13% year-over-year. The year-over-year decrease was mainly attributable to lower trading volume of a very high base in the first quarter of 2021, partially offset by a higher blended commission rate of 7.3 basis points. The Q-over-Q increase was mainly driven by sequential growth in trading volume. Interest income was $575 million, a decrease of 13% year-over-year and 7% Q-over-Q. The year-over-year decrease was mainly due to lower interest income from security lending business and the lower IPO financing interest income and the very inactive IPO market. The Q-over-Q decrease was mostly attributed to lower margin financing income as client deleveraged. Other income was 98 million, down 56% year-over-year and 23% Q-over-Q. The year-over-year and the Q-over-Q decrease was both primarily due to lower IPO financing service charge income, currency exchange service income, and underwriting fee income. Our total cost was $228 million, a decrease of 49% from $443 million in the first quarter of 2021. Volcage commission and the handling charge expenses was $96 million, down 55% year-over-year and up 9% Q-over-Q, Brokerage commission expenses didn't move intended with brokerage commission income due to an upgrade service package. mainly due to lower IPO financing interest expenses and the lower interest expenses associated with our store lending business. Interest expenses record a steeper decline in the interest income due to lower blended funding costs as we further diversify our funding sources. Processing and servicing costs were $93 million, up 50% year-over-year and 26% Q-over-Q. The increase was primarily driven by higher crowd service fees to support overseas market expansion and the process of higher number of concurrent trades. As a result, total gross profit was 1.4 billion and decrease of 20% from 1.76 billion in the first quarter of 2021. Gross margin was 86% as compared to 80% in the first quarter of 2021. Operating expenses was up 53% UOE and down 9% Q over Q to $748 million. R&D expenses were $282 million of 160% UOE and 4% Q over Q. The increase was mainly due to higher R&D headcount as we continue to invest in U.S. self-clearing business and support our new product offering in existing and new markets. Selling and marketing expenses was $288 million, an increase of 5% year-over-year and a decrease of 15% QOQ. The year-over-year increase was mainly due to increased selling and marketing personnel to support international market expansion, though largely offset by lower marketing spending. GNN expenses was $178 million, up 128% year-over-year and down 18% QOQ. The rise was primarily due to increasing headcount for G&A personnel as we opened a more international office. As a result, our net income decreased by 51% year-over-year and increased by 15% Q over Q to $572 million. Our effective tax rate for the quarter was 11%, and the net margin was close to 35%. That concludes our prepared remarks. We now would like to open the poll to questions. Operator, please go ahead.
spk02: Thank you. We will now begin the question and answer session. If you wish to ask a question now, please press the L1 on your telephone and light for your name to be announced. If you wish to withdraw your request, please press the pound or hash key. Please stand by while we compile the question and answer roster. Once again, if you wish to ask a question, please press star 1 on your telephone. Our first question comes from the line of Emma Xu from Bank of America Securities. Please ask your question. 谢谢给我第一个提问的机会。
spk01: First of all, congratulations to the company for achieving a very strong performance in the first quarter. I would like to ask, can you hear me? Can you hear me? Yes. So I just want to ask about the current situation of the operation of the company in the second quarter. Could you tell us about the current situation of the main indicators? Then we saw that in the first quarter, we continued to increase the market share in Hong Kong. From some small and medium-sized exchanges, you got some market share. Did this trend continue in the second quarter? And did the management think that this year So thank you for giving me the opportunity to ask the first question. So congrats on your very strong results in the first quarter. So I have a question for your second quarter operations. Could you please run us through the major operating metrics in quarter today? And we see you get market share in Hong Kong market in first quarter. If the trend continues in second quarter, do you expect to continue to get market share in rest of the year? And also, how about the performance in your other new international markets? Thank you.
spk06: Thank you, Emma. Given that, you know, this is the first quarter and we're more focused on the, you know, first quarter situations, I think, you know, LEAP can give you some more high-level qualitative colors in terms of quarter-to-day situations. But maybe I can answer your second question first. I think the trend which will witness the market consolidation, especially in Hong Kong markets, continues to accelerate in the second quarter to date, given that we think, number one, more and more small players start to exit from the markets. We can see some small brokers, including some even big ones, such as Yitong Zhenquan, iAccess, closed down their office in Hong Kong in the first quarter. Secondly, we see more clients access migrations from these small brokers to these leading players, such as FUTU, etc. I think maybe we can give you some more colors in terms of second quarter overall situation. 关于Q2到现在的情况的话,我们其实还是能够看到整个货客的话受到行情的影响是比较大的。 那么能看到这个地方的客户增长有所放缓。 那么具体分市场来看的话,大中华地区,
spk03: Thank you.
spk04: I think the client acquisition pays to some extent affected by market performance. And we have seen client acquisitions slow down a bit across various regions. And by market in greater China region, client acquisition remains largely stable with Hong Kong outperforming, as Arthur mentioned, on the back of market consolidation. And in Singapore, we continue to see the clients entrust us with more of their assets. And despite the robust momentum of net asset inflow, total client assets still experienced a single-digit Q1Q decline so far, largely due to this mark-to-market impact. Thank you.
spk05: 另外就是我可以分享一下关于新加坡和美国的这个QE客户的课后的一个情况。 That's not what it is. You see, when it comes to our customers, we've seen a lot of growth in their net worth. At the end of Q1, our Singapore customers' net worth is over 9,000 US dollars, which is a pretty good increase. In addition, the number of customers who have received the money in the past few months The share price has increased to 6,000 new coins. This number is about 3 to 6 months for customers who just started their business last year. We can also see that while Singapore's number of customers is increasing, the quality is also constantly increasing. This is in line with our overall expectation of the Singapore market expansion. The other one is the U.S. Although our customers in the U.S. have maintained a rapid growth in QE, But our mutual fund assets have dropped. We also hope to put more focus on improving customer quality this year. In addition, we are constantly adjusting the leverage threshold for investment in different channels. It is mainly used to test various rewards for different image customers. In this way, the number and order of our new customers and mutual fund assets can show some fluctuations. Thank you, Daniel.
spk04: Yeah, so we're going to share some color on our Singapore and U.S. client cohort. And in Singapore, we saw robust growth in both net asset inflow and average client assets. And as of the end of the first quarter, average assets per paying client in Singapore have exceeded $9,000, which represents a sound quarter-over-quarter growth. And, for example, for the clients that we acquired in the most recent quarter, Their net asset inflow in the quarter increased to around 6,000 Singapore dollars, which could only be realized in about three to six months for those clients that we acquired right after we launched in Singapore. And generally, we saw both improving quality and quantity of clients in Singapore, which is in line with our overall expectations when we launched in Singapore. And then a little bit about our U.S. business. So despite the rapid growth of clients in the U.S. in the first quarter, average assets for clients still suffered a decline. And for the rest of the year, we'll put more emphasis on improving client quality. And we also continue to adjust our client incentives for different client acquisition channels in order to test the client acquisition efficiency for clients with different profiles. And this justifies certain fluctuations in the number of new clients and average assets per client in the U.S. Thank you.
spk01: Thank you. That's very helpful.
spk02: Thank you. Our next question comes from Leon Chi from Daiwa. Please go ahead.
spk07: Hello. Thanks a lot for taking my question. This is Liang Qi from Daiwa. Thank you very much for giving me the opportunity to ask this question. I am Qi Xiaoliang from Daiwa. I would like to ask two questions to Guan Liqian. The first one is about the transaction. Guan Liqian also mentioned that our average commission rate has increased by more than a quarter. This is because in addition to the stock market, we have also obtained very good transaction volume from a few other eye products. We also launched some new Algo products. I would like to know more about the long-term view of the stock and extension products in our trading. Do we have a long-term ideal mix between the stock and non-stock products? And I don't know if you can share with us what kind of new products we are going to push in the next few major markets. The second question is about... I remember in the last conference call, you mentioned a guide for R&D investment. I would like to follow up on how R&D investment has changed compared to our previous expectations. After all, we have seen that R&D expense has grown relatively fast. I don't know if this is in line with our expectations. Can we see the effect in the first two years as we discussed last time? Thanks for taking my question. This is from Taiwa. I have two questions today. Firstly, on the trading side, I appreciate that management mentioned in your opening remarks that the blended commission rate actually saw a sizable uplift. This is mainly because of a number of new non-cash equity products launched. such as Inverse ETFs, Big Futures, and the two elbow products in Singapore. Just wondering that over a longer time horizon, does management have any ideal split in the trading volume between cash equity and derivative products? And also, if possible, appreciate management to share some color on our upcoming pipelines in the derivative products in our major markets. The second question is that I'm just wondering if management could give any updates on the progress of your R&D expenses. Notice that we actually are investing heavily on the R&D side. I'm just wondering if we have any updates compared with the guidance that was given a quarter ago on the timing when we could see the results of these investments. Thank you very much.
spk06: Thank you, Leo. This is Sasa. I will take these two questions. Number one, just give you a little bit of sense about, you know, derivative trading contributions for our total trading commission. derogative accounts roughly 30% in this quarter. I think the contribution from this derivative in the first quarter was particularly high due to the market conditions. A lot of investors looking for instruments to do the hedging when the markets, regardless in the US, Chinese ADRs or Hong Kong markets, was quite volatile in the first quarters. If you look at our long-term strategy, I think number one is we do not encourage people to trade these derivatives, I think the guiding principle for us is to let investors understand the risks associated with these very complicated trading instruments. But at the same time, after we provide sufficient investment education, we do want investors to use these instruments to make much better risk-reward returns. Versus other online brokers such as Robinhood or other U.S. players, you can see their derivative revenues contribute much, much higher of their total revenues compared with us, which accounts for roughly 45%. even to 50% above. Therefore, I think, you know, our current 30% contribution is healthy. We do think at the same time, there's a huge room for, you know, Hong Kong derivative development given that more and more Chinese ADRs go back to the Hong Kong. There will be more market trading liquidity in this market, which definitely will be a huge plus for our derivative business in Hong Kong down the road. For your second question, the R&D expenses, we provide certain guidance in terms of staff headcount increase this year. In the beginning of this year, we project a roughly 20% headcount year-over-year increase, and we maintain this budget so far. I think in the first quarter, roughly our headcount increased 5% Q-on-Q basis. Therefore, everything is on track. Most of our IMD expenses actually belong to the salary and the bonus for our IMD personnel. I do think they work very, very hard to make the things forward, especially for some key projects such as U.S. self-clearing and also some new products to be launched in the second half of this year.
spk07: That's very helpful. Thank you, Arthur. Thank you. Thank you.
spk02: Thank you. Our next question comes from Zoe Tung from Jefferies. Please ask your question.
spk00: 感谢管理层接受我的提问。 我这边有两个问题想请教一下。 第一个是我们看到Q1的货客成本还是有比较明显的Q on Q decline。 想检查一下我们应该怎么看Q2和以后的货客成本趋势呢? Thank you, management, for taking my questions. I have two questions. So my first question is on customer acquisition cost. So we have seen a Q1Q decline in customer acquisition cost in Q1. How should we think about the trend in Q2 and future? And my second question is that Since we launched our business in Australia on 8 March, so could you please provide some detail about the user traffic, client assets per paying client and the customer acquisition cost in Australia. Anything will be helpful. Thank you.
spk06: Thank you, Zoe. I will leave the second question to Leif, and I will address your first question regarding the CAC. You're right. I think, you know, the overall CAC cost in the first quarter is around $3,500 Hong Kong dollars, surpass our, you know, the budget of $2,500 to $3,800 in the beginning of this year. The reason is, you know, in the first quarter, actually, we have some, you know, advertisement campaign commitments. which we have already made the last Q4. And these campaigns have been carried forward to the first quarters. In the remaining three quarters, we do think there can be sequential decrease in terms of absolute CAC amount. We hopefully, it can be back to the range of 2,500 to 3,000 somethings. At the same time, I think as Robin mentioned before, this year, alongside the number of new paying clients, we'll be more focusing on the quality of our new paying clients as well. Therefore, besides the client acquisition costs, we'll also take into the considerations of asset acquisition costs as well.
spk03: As you mentioned, we officially launched in Australia on March the 8th, which is about three months ago.
spk04: And since then, we have mostly been focusing on building the local team and exploring marketing strategies. We think there's a lot of growth prospects in Australia, and we await to see more data. Thank you.
spk02: Thank you very much. Thank you. Our next question comes from from CICC. Please ask your question.
spk08: Thank you for giving me the opportunity to ask questions. I am Yao Zeyu from Zhongjin. Congratulations to us for achieving a very good performance in this relatively weak market. As Guan Licheng mentioned before, such a bad market environment is actually very beneficial for us to get a higher market share in the entire market. So you may also see that the market share of retail customers, whether it is goods or raw materials, is increasing significantly. Based on the previous analyst's question, I would like to ask in the past few months, In addition to the product experience, capital strength, and brand trust, these are the core advantages that we have always had. Then we attract a lot of competitors and customers to turn into our main catchers in the past few months. The second is from a long-term perspective, we are in the stock market in Hong Kong. The target of our market price is probably how much in the long term. Now, thanks to management, as we observed, Futu has acquired many clients from other brokers in the last few months and accelerate the market share gains as the leading platform. And we believe Futu will be the potential winner in the coming sector consolidation among the snuggish market. Could you give us more comment about the reason why so many clients from our competitors choose to transfer their account to Futu And what's the package of futures market share in stock and derivatives in Hong Kong market or Hong Kong retail market? Thank you.
spk06: Thank you. I will take these two questions. I think number one, you're right. We made very encouraging progress in the Hong Kong market in the first quarter. Actually, you know, if we look at net asset inflows in the first quarter, it's actually the second best, you know, the quarters in terms of net asset inflows in Hong Kong. We do think Hong Kong will face very significant industry consolidations, and the leading players like FUTU will definitely benefit from this trend. Besides these new clients we acquired, I think in the first quarter and going forward, we are also focusing on our existing clients as the inflows. In particular, in the first quarter, we do a lot of proactive marketing campaigns. to attract our existing clients to migrate more assets to FUTU from other brokers or even from the banks. Therefore, we can see more asset inflows generated from our existing clients. And secondly, we do think the industry dynamics in Hong Kong will become more benign, given that certain of our peers start to strategically exit from the Hong Kong markets. In terms of the product offering, definitely there will be a lot of new exciting product pipelines in the second half of this year. For the trading perspective, we are looking for more ethics trading starting from the second half of this year. And also, we will more cater to certain institutional investors' demands in the Hong Kong trading and the U.S. trading as well. And for your second question, in terms of the long-term market share, I think now on the cash equity side, in Hong Kong, our market share is around 2% to 3%. uh you know versus our peers uh in in the asia markets or in other regions we do think you know there are few emperor to be uh to to to be consolidated and also for derivatives uh in the past several months our market shares in the hong kong future is in the range of five percent to eight percent We are very confident we will get more market shares in this particular niche market. And also, at the same time, the whole pie of the Hong Kong derivative, we are very confident will have a very meaningful upside going forward as well. For the option trading in Hong Kong, our market share now is around the 10%. I think we may close to the ceilings gradually. 10% market share from a retail broker perspective has been already very high. Thank you.
spk08: Thanks, Arthur. Very helpful. Thank you.
spk02: Right. Thank you all very much for your questions. We have now reached the end of the question and answer session. I'll now turn the call back to Daniel for closing remarks.
spk04: That concludes our call today. On behalf of the FUTU management team, I would like to thank you for joining us. If you have any further questions, please do not hesitate to contact me or any of our investor relations representatives. Thank you and goodbye.
spk02: Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect.
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