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spk03: Hello, ladies and gentlemen. Welcome to Fatu Holden's second quarter 2022 conference call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a Q&A session. Today's conference call is being recorded. If you have any objections, you may disconnect at this time. I would 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 Fatu. Please go ahead, sir.
spk09: Thanks, operator. And thank you for joining us today to discuss our second 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 forward-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 uncertainty. We caution you that a number of important factors could call back to 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 this registration statement. So with that, I will now turn the call over to Leif. Leif will make his comments in Chinese, and then we'll translate.
spk06: Thank you for attending today's conference. By the end of the second quarter, our real estate customers have reached about 1.39 million, which is 39% of the total growth. In the second quarter, the real estate customers competed with about 60,000 people. In the first half of the year, the total competition was 14.3 million. Thank you all for joining us today. As of quarter end, we had approximately 1.4 million paying clients, up 39% year over year. Net addition was over 60,000, bringing our first half paying clients growth to 143,000.
spk09: This was also the 10th consecutive quarter for which organic growth contributed over 50% of new paying clients.
spk06: In the second quarter, we saw a steady growth of customers in Hong Kong. In May, we launched a targeted marketing campaign around the issuance of green bonds, to attract users to the asset configuration direction, to open and buy bonds on our platform. In the end, more than one-fifth of the Hong Kong people who bought green bonds in the market paid off through our platform. This reflects our leading brand popularity and outstanding product experience. Currently, We have a population penetration rate of 7.5% in Hong Kong at the age of 30. Therefore, we will continue to put the focus on customers in groups over the age of 30. We have launched a new market marketing plan for this purpose, and have launched new product functions, including Lite trading mode, to provide customers with a simpler and smoother trading interface. We have also launched the Hong Kong stock monthly supply plan to serve those customers who do not have high demand for discount. In the Singapore market, In the second quarter, client acquisition was resilient in Hong Kong.
spk09: where we launched targeted marketing campaigns around the green bond issuance in May and attracted allocation-driven clients to subscribe to the green bond on our platform. We contributed over one-fifth of the overall green bond subscribers, which speaks to our leading brand recognition and superior product experience. In Hong Kong, we'll continue to focus on clients over 30 years old, as our current penetration rate among 30-plus Hong Kong residents is at a mere 7.5%. To achieve that, We have rolled out new marketing initiatives and launched new features, including the light trading mode, which offers a more simplified and sleek trading interface, and the regular savings plan for Hong Kong stocks, which caters to clients less interested in market timing. In Singapore, we've realized that the local users are more conservative during market downturn, and thus launched a series of investor education activities to help users understand how to better navigate market turmoil. and continue to diversify our product offerings and wealth management. We are encouraged to see that our quarterly client retention rate remained above 98% despite sharp market correction in April and May.
spk06: Ximo's total customer assets are about 4,341 Hong Kong dollars, with a drop of 14% in the same ratio and a 12% increase in the same ratio. The increase in the same ratio is mainly due to the strong customer income in each region, and in June, The rebound of China's technology stocks. In Singapore, we continue to acquire high-quality customers. In the past few months, we have acquired asset customers. Their military assets have exceeded 10,000 jins in three months. In contrast, the customers we acquired last year took about nine months to reach a similar asset size. As the trading mood of technology stocks in the market has recovered, the share price has increased by 13%.
spk09: Total client assets decreased 14% year-over-year and increased 12% quarter-over-quarter to HK$434 billion. The sequential increase was largely due to strong net asset inflow across different regions, and to a lesser extent, rebound of China technology names in June. In Singapore, we continued to acquire higher-quality clients. The average asset balance of our newly acquired paying clients in Singapore exceeded HK$10,000 within three months. This compares to about nine months for clients we acquired last year. Margin financing and securities lending balance increased 13% quarter-over-quarter, as sentiments around technology stocks improved sequentially.
spk06: This quarter, the total trading volume is 1.3 trillion Hong Kong dollars, with a return of 2%. The total trading volume of 8,970 Hong Kong dollars per share is 67%, with a return of 6%. In the case of market fluctuation, the exchange rate of ETFs has increased significantly, leading to an increase in the amount of transactions. The amount of transactions in Hong Kong shares is about 4,240 billion Hong Kong dollars, down by 5%, which is mainly due to the overall trading mood of China's technology stocks. At the same time, the market share of goods and full-time transactions in Hong Kong has increased to 6.7% and 13.5%. At the end of June, We have launched the Hong Kong stock combination equity function, allowing customers to design complex equity trading strategies, thereby better managing risks to achieve investment goals. We believe that the launch of this function will attract more high-end equity traders. Total trading volume was HK$1.3 trillion, up 2% quarter over quarter. U.S.
spk09: stock trading volume was HK$897 billion. constituting 67% of the total volume and up 6% quarter over quarter. The sequential growth was mostly driven by higher turnover of leverage and inverse ETFs amid heightened market volatility. Hong Kong stock trading volume was 424 billion Hong Kong dollars, down 5% sequentially due to muted market sentiment around China tech names in Hong Kong. In the meantime, our market share in Hong Kong futures and options trading climbed to 6.7% and 13.5% respectively. We launched multi-leg options function for Hong Kong stocks by the end of June, which enables our clients to formulate advanced options trading strategies to better manage risk and achieve investment targets. We believe this function will attract more sophisticated options traders to our platform.
spk06: The total assets of asset management customers are 2.2 billion Hong Kong dollars, which is 59% more than the increase, and 5% more than the decrease. As of the end of this quarter, more than 200,000 customers hold asset management products. With a total of 15% of asset customers, in the context of the increase, the attraction of the currency fund to our customers is constantly increasing. In addition, after referring to the asset configuration proposal of Anben, we have launched a combination of anti-inflation strengths to help our customers deal with high inflation environments. In Singapore, we have further enriched the products and functions of public funds, which has led to a 377% increase in wealth management assets. Total client assets in wealth management were HK$22 billion, up 59% year-over-year and 5% quarter-over-quarter.
spk09: As of quarter-end, over 200,000 clients, 15% of our total paying client base, held wealth management products. The money market funds became increasingly attractive to our clients amid interest rate hike. And to help our clients navigate a rising inflation environment, we also launched a model portfolio of global real return strategy in collaboration with Aberdeen. In Singapore, wealth management asset balance increased 377% quarter-over-quarter as we further expanded mutual fund offerings and launched new product features.
spk06: Remember, We have 276 IPO distributors and investor-related customers, and 519 ESOP customers, with a growth of 48% and 97% respectively. More than 1,000 companies interact and interact with ESOP investors in our community through the enterprise number. Biadi Electronics and Tianqi Aluminum Industries are also investing in Futu Enterprise in the second quarter. In the first half of this year, we, as a salesperson, participated in 12 short-term IPO projects,
spk09: As of quarter end, we have 276 IPO and IR clients, as well as 519 ESOP clients, up 48% and 97% year-over-year. Over 1,000 companies are now using their enterprise accounts in our social community to communicate with retail investors. Among the new additions in the second quarter are BYD Electronics and Tianqi Lithium. In the first two quarters, we acted as the underwriter for 12 Hong Kong IPOs, tied for first place in terms of the number of Hong Kong IPOs underwritten.
spk06: We believe that superior user experience is our biggest competitive advantage. In the first half of this year, we released 99 mobile applications and added 3,989 new features to the desktop customer version, respectively increasing by 21% and 52%. We believe that our superior user experience remains our biggest competitive advantage. In the first half of this year, we continued our relentless pursuit of product experience by releasing 99 versions of our mobile app and desktop clients and adding 3,989 new features.
spk09: of 21% and 52% year-over-year. Going forward, we intend to launch more customized features for clients of different regions.
spk06: Next, I'd like to invite our CFO, Arthur, to discuss our financial performance.
spk10: Thanks, Liv and Daniel. Now, please allow me to walk you through our financial performance in the second quarter. All the numbers are in Hong Kong dollars, unless otherwise noted. Our total revenue was $1.7 billion, up 11% from $1.6 billion in the second quarter of 2022. Vocation commission and handling charge income was $1 billion, an increase of 30% year-over-year, up 7% year-over-year. The year-over-year increase was mostly driven by a higher blended commission rate of 7.7 basis points from 6.1 basis points in the year-low order, underpinned by greater contribution from derivative trading. The Q over Q increase can be attributed to our commission per share pricing model for U.S. stock trading, as a decrease in the average share price of the stock our client trades can result in a higher blended commission rate. Interest income was $620 million, an increase of 2% year-over-year and 8% Q-over-Q. The slight increase year-over-year was due to higher income from cash deposits and the security lending, which were largely offset by lower margin financing income and IPO financing interest income. The Q-over-Q increase was mostly due to a higher interest income from cash deposits amid a rising rate environment. Other incomes were $93 million, down 45% year-over-year and 6% Q-over-Q. The year-over-year decrease was driven by a lower ICO financing service income and underwriting fee income. The Q-over-Q decrease was mainly due to lower currency exchange income and enterprise public relationship service charge income. Our total costs were $208 million, a decrease of 25% from $279 million in the second quarter of 2022. Brokerage commission and handling charge expenses were $88 million, down 40% year-over-year and 10% QOQ. Despite the year-over-year increase in brokerage commission and handling charge income, the expenses declined due to the cost saving from our U.S. security self-clearing migration and upgrade service package with our U.S. clearinghouse and the lower ICO subsequent fees. The QOQ decrease was mostly due to self-clearing. Interest expenses were $27 million, down 67% year-over-year and 32% Q-Q. The year-over-year decrease was mostly due to low expenses for margin financing and IPO financing. The sequential decline was driven by lower lender funding costs as we financed an increasing percentage of our margin book with cash collateral generated from security borrowing. Processing and service costs were 94 million of 74% year-over-year and 1% year-over-year. The year-over-year increase was primarily driven by higher crowd service fees to support overseas market expansion and to process a large number of concurrent trades. As a result, total gross profit was $1.5 billion, an increase of 19% from $1.3 billion in the second quarter of 2021. Gross margin was 88% as compared to 82% in the second quarter of 2021. Operating expenses were $747 million, up 12% year-over-year and down 4% year-over-year. To break it down, R&D expenses were $292 million of 69% year-over-year and 3% Q-over-Q. The increase was mainly due to an increase in R&D headcount as we continue to support new product offerings, invest in the U.S. self-clearing capabilities, and customize product experience in different markets. Selling and marketing expenses was $219 million, a decrease of 42% year-over-year and a 24% Q-over-Q. The year-over-year decrease was due to lower overall marketing and branding spending, especially in international markets. The expenses declined Q-over-Q as marketing spending came down due to slower paying client growth. G&A expenses were $211 million, up 118% year-over-year and 19% Q-over-Q. The increase was primarily due to increase in headcount for general and administrative personnel. As a result, our net income increased by 20% year over year and a 12% Q over Q to $639 million. Net interest margin extends to 37% in the second quarter as compared to 34% in the same quarter last year, partially attributed to lower tax rate of 10%. This lower tax rate was due to the tax credit benefit from our U.S. self-clearing house. We maintain our long-term tax rate guidance of 12% to 14%, but tax benefits could linger another two quarters also. That concludes our prepared remarks. We now like to open the call to questions. Operator, please go ahead.
spk03: Thank you. If you wish to ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A roster.
spk07: We will take our first question. Please stand by.
spk03: And the question comes from Cindy Wang from China Renaissance. Please ask your question.
spk00: Thank you, Manager Chen, and thank you for giving me the opportunity to ask my first question. I have two small questions to ask. I saw that the number of new workers in the second quarter is actually a little bit lower than before. Can you tell us about the number of new workers in each region What is the current trend of the market? What is the trend of the market? What is the trend of the market? What is the trend of the market? What is the trend of the market? What is the trend of the market? What is the trend of the market? Okay, thanks for taking my question. So I have two questions. So first question is, can management give us some breakdown for the new customer acquisition by different regions? Since July and August, the stock market turnover coming down. So what's the new customer acquisition trend in July and August? Please give us some color on that. And the second question is related to the Singapore. Since FUTO has got the self-cleaning license in Singapore, so do we have any schedule when we will finish the self-cleaning for the Singapore stocks? And once we finish the self-cleaning, can we have further helping out in terms of the Singapore new customer acquisition? Thanks.
spk10: Thank you, Xinqi. Let me just answer your second question first. I will read the first question in terms of the new pain clients breakdown to my colleagues, Robin. I think now the most focus of our technology capabilities still lies on our US self-clearing operations. This migration has conducted very smoothly and so far we have already migrated over 80% dollar value of our U.S. security positions. from our business partners to our own clearinghouse. And we do expect this exercise will be largely complete by the end of this year. Afterwards, we do think you're right, you know, the self-clearing capability in the Singapore market definitely is on our schedules, but it will be followed, you know, subsequent to the completion of our U.S.
spk07: self-clearing migration.
spk02: Hello, let me answer the first question. Regarding the distribution of our 2Q asset customers, we can see that the share of asset customers in the entire China region is about 75%. Among them, Hong Kong will be slightly more, and Singapore's share is about 15%, and the United States is about 10%. The distribution of asset customers in the near future of 2Q is currently half of the share of China and overseas markets. Okay, thank you. Very clear.
spk07: Your next question comes from the line of Zoe Zong from Jefferies. Please ask your question.
spk05: Thanks for taking my questions. Congratulations on the solid results first. And I have two questions. So first, in Q2, we recorded 95.5 million non-opening stores in Hong Kong dollars. So would you please provide more color about this item? And my second question is, how should we expect the customer acquisition cost to improve? Thank you.
spk10: Thank you. I also take your second question first. I think you're right. The year-to-date volatility in the capital market definitely has some certain negative impacts in terms of our client positions. And you can see our blended cap numbers is around 3500 Hong Kong dollars in the second quarter, which is slightly higher than our previous guidance. of, you know, 25 to 30 hundred Hong Kong dollars. We do think, you know, the current market turmoil maybe continue in the near term or even in the whole second half of this year. So, therefore, we do think our previous estimation may be a little bit too optimistic. And we currently expect, you know, the cash numbers in the second half of this year may maintain at the current level. For a while. Can I just, you know, could you just repeat your first question regarding the P&L items?
spk05: Yes, this is what we have in the others. In the others, there is a project called 95.5 million others. And I don't know what it is exactly.
spk10: Sure. The other main consists of unrealized financial gain and the loss. The nature is that we provide certain margin financing to our clients which trade Asia Connect. Previously, we do, you know, borrowing the offshore IMBs to fund this margin balance. But given the current, you know, the balance sheet situation, actually we try to, we have exchanged certain of the positions from our Hong Kong dollar position to the IMB position ourselves. Due to the, you know, The very volatile IMB Hong Kong dollar movement in May and June, we recorded and realized the loss. But this is actually on the cash items.
spk08: If we look in the long run, we do think it can be a chance to reverse that.
spk05: Got it. Thank you.
spk03: Thank you.
spk07: We will take our next question. And the question comes from Emma Zhu from Bank of America Securities.
spk03: Please ask your question. Okay.
spk04: So my question is regarding the financial impact of U.S. self-clearing as well as the U.S. rate hike impact to your financials. Sure. Let me also just these two financial number of questions.
spk10: For the self-clearing, as I mentioned before, we have already migrated over 80% of our, you know, US stock positions to our own clearing calls. According to the current runway, we do expect in the second half of this year, the self-clearing capability can encompass 200 to 250 Hong Kong dollars incremental revenues to our own P&S. Secondly, regarding the the interest rate class. Definitely, we do think we are a beneficiary from the rate cycle, given that we will get more interest income from clients' idle cash. Just do some very simple calculations. If the rate hikes do follow the consensus expectation nowadays, say toward the end of this year, the rate will be increased to, say, 3 or 3.25 basis points. In the second half of this year, we can generate additional $250 million interest income because of that.
spk04: Just to the second half of this year. Okay, yeah, thank you. That's very clear. Thank you. Thank you. We will take our next question.
spk07: And the question comes from Leon Key from Dwyer.
spk03: Please ask your question.
spk11: I have two questions for Manager Chen. First of all, regarding our goods class, in the new class, we see that the second level is still very strong. There are about 61,000 real estate clients, new real estate clients. Before our whole year's guidance, it was 200,000. It seems that in the first half of the year, it has already exceeded half of the target of 200,000. So I want to ask Manager Chen, I don't know if our whole year's How do we look at the guidance now? Is there any room for further improvement of the entire year's guidance? The other is about our capital management. We also saw an update in our announcement regarding our repurchase. We have already repurchased 6.5 million ADS and used almost 200 million USD. In fact, we see that while we were doing the repurchase, our free cash was still in the return rate and achieved a growth. In other words, we can use more and more money. So I don't know how the management will look at our cash position. How many cash positions do we have is a relatively comfortable level for us. In this way, we can gauge how much cash can be used to return to the shareholder. These are two questions. Thank you for giving me the opportunity to ask this question and congrats on the very strong results. I have two questions today. Firstly, it's regarding your new customer acquisition guidance. I appreciate your very strong new customer acquisition in the second quarter, which reached 61,000. And given you had also a very strong customer acquisition in the first quarter, now your first half of the new customer acquisition has reached well over 50% of your full year guidance of 200K. So wondering if management want to take any revisions to your full year target of 200K. The second question is regarding your capital management. We are very delighted to see that the free cash position of the company actually saw a substantial increase while the company is doing very decent buybacks. Could management give us any color in terms of the comfortable level of the cash position you want to hold so that we have some clues to gauge the amount of capital that you will be kind of made available to return to shareholders? Thank you very much.
spk10: Thank you, Leo. I'll let our CEO leave to answer your first question, and I will take your second question afterwards.
spk06: Hello, let me answer your first question. Because the overall market situation this year has been poor so far, the future market situation has been very uncertain. In this context, the attractiveness of new customers is relatively limited. We hope that under this market situation, we can focus more on the quality of new customers and the current situation of mass customers and the unit economic model of various places. Therefore, we plan to continue to maintain a value of 200,000 competitive customers throughout the year and pay attention to the deep operation of real estate customers. In the future, we will, according to market changes,
spk09: So the overall market has recorded pretty poor performance here today, and we expect this uncertainty to persist for a reasonable period of time in the future. And we believe the current market is not that attractive to new clients, and we think we'll continue to focus more on the quality of our new clients, the net assets and flow of our existing clients, and the unit economics of the various regions, especially in such a sluggish market. So we now plan to keep our previous guidance of having 200,000 net new paying clients, and we may revisit the guidance later on this year. Thank you.
spk10: Yeah, for the second question, I think we are still in the early stage of FUTO's long-term growth tragedy. So it is too early to tell ideal capital ratios we should focus. Instead, to give a fixed number, I think what we focus will be our long-term growth potential, especially in the new market, and also further deployment our resources on the key technology operations going forward. Definitely, we will focus more on the ROE side in the long run. But in the near future, I do expect we do not have any dividend payout plans in the foreseeable future.
spk08: Okay. Thank you very much. Thank you.
spk03: Thank you. We will take our next question. And the question comes from the line of Frank Zeng from Credit Suisse. Please ask your question.
spk01: 感谢管理层。 我有两个问题。 第一个问题是关于费率的。 我们看到这个Blended Fee Rate在这个季度还是有一个环比的增加的。 那么请管理层能不能提供这个更多的信息关于到底是什么 driver to drive this increase and I would like to ask if this trend will continue until the second half of this year. The second question is about the IPO market, because we saw that the IPO market of Hong Kong stocks in July has been slowly warming up. From our review, have you seen any new costs and income from the IPO, including Let me quickly translate my two questions. The first one is on blended fee rate. As we see, fee rate continue to increase in the second quarter on sequential basis. Can the management provide more color on the drivers behind this climb? And also, will this trend us into the second half? And the second question is on IPO market. As Hong Kong IPO market slowly recovers, do we see a recovery in the IPO bridge loan interest income and subscription fee income? And in terms of proportion, what is the proportion of IPO rate income as of total revenue? Thank you.
spk10: Sure, I will take these two questions. As I mentioned in the opening remarks, you're right. You do see, you know, on a blended basis, our commission rate continues to hike year-on-year basis and also QMQ basis. Largely, I think, is more contributions from the derivative trading, which now roughly accounts for 30% of our total trading commission revenues. But we do not have any target or try to encourage people to trade on these divergent stocks. The other implication is because of the market volatility in the U.S. market in particular. The reason is we set a commission per share pricing model for our U.S. stock trading. You can understand that in the second quarter, U.S. markets corrected significantly. So a decrease in the average share of the stocks, our client trade, can actually result in a higher blended commission rate. So this is more due to the market volatility. For the second question, the contribution from the IPO business actually in history just accounts for high single-digit or low-king numbers of our total revenues. We do think it will, we do not, a very meaningful pickup despite the number of the IPO in Hong Kong start to rebound since June. I think it will still take some time for the market especially for the retail investors to build up the further momentum to participate in these transactions.
spk07: Thank you.
spk03: Thank you. I would now like to hand back to Daniel Yuan for closing remarks. Please go ahead.
spk09: 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.
spk03: This concludes today's conference call. Thank you for participating. You may now disconnect.
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