Futu Holdings Limited

Hello, ladies and gentlemen. Welcome to Futu Holdings' first quarter 2023 earnings 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 to CEO and Head of IR at Futu. Please go ahead, sir.

Thanks, operator. And thank you for joining us today to discuss our first quarter 2023 earnings results. Joining me on the call today are Mr. Lief 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 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 its annual report on Form 20F. With that, I will now turn the call over to Leif Lisa will make his comments in Chinese and I will translate.

Thank you all for joining today. As of quarter end, our paying clients surpassed 1.5 million, representing 15% growth year-over-year.

Based on paying client growth in the first five months of the year, we expect to add 150,000 paying clients in 2023. In the first quarter, Hong Kong market contributed over one-third of paying client growth as client acquisition accelerated on the back of the rally of China technology names in January. We also witnessed resilient paying client growth in Singapore as we continue to strengthen our brand awareness through offline events and promoted demand for lower-risk fund products through industrial education.

We expanded the trade product category in multiple markets and upgraded the product function. In Hong Kong, we began to provide customers with services for specific US stocks and ETFs. As the only one in Hong Kong to provide 5x24 hours of US stock trading function, we have improved the flexibility of the trading period and lowered the threshold for Hong Kong customers to participate in US stocks. We also launched the GANGAN market foreign exchange function in Singapore to provide customers 36 major currency-based insurance transactions, allowing customers to seize the opportunity to trade in the ever-changing foreign exchange market. In the U.S., we have launched the U.S. stock combination equity function. The introduction of this high-end trading function has optimized the customer's trading experience, and is expected to attract more high-end equity traders to our platform. Although the market is weak in the first quarter, there is also a negative impact, but we are constantly enriching the product category and optimizing the product experience.

We continued to broaden our trading product offerings and upgrade trading features in various markets. We became the only broker in Hong Kong that allows clients to trade certain U.S. stocks and ETFs 24 hours a day, five days a week, thereby enhancing the flexibility and accessibility of U.S. stock trading. We also launched leveraged foreign exchange trading in Singapore. where clients can trade 36 major currency pairs on margin to take advantage of volatilities in the foreign exchange market. In the U.S., we've rolled out multi-led option strategy orders for U.S. stocks. This advanced trading function streamlines clients' trading experience and will attract more sophisticated options traders to our platform. Despite market weakness and headline regulatory news, our expanding product suite and premier user experience led to another quarter of over 98% paying client retention rate.

With the growth of our customer base and the continued promotion of our entry-level funds, our total customer base has reached 4,660 billion Hong Kong dollars, which is 21% higher than before and 12% higher than before. In Singapore, thanks to the strong entry-level funds and the better performance of the U.S. stock market, our total customer base The total client assets increased by 21% year-over-year and 12% quarter-over-quarter to HK$466 billion.

due to higher mark-to-market value of client stock holdings and net asset inflow. In Singapore, total client assets and average client assets increased by 28% and 22% sequentially, attributable to solid net asset inflow across client cohorts and favorable U.S. equity market performance. In the first quarter, we attracted high-quality clients to Singapore that continued to deposit funds into their trading accounts. For clients we acquired in January, for example, Their average asset balance almost tripled my barge.

With the increase in the trading mood of the technology stocks, the share price has increased by 30% to 3.5 billion Hong Kong dollars. This quarter's total trading volume is 1.2 trillion Hong Kong dollars. The share price has increased by 12%. Many U.S. technology stocks have performed well this quarter, winning the market. The increase in the trading volume of iBank, Margin financing and securities lending balance was up by 30% sequentially to reach HK$35 billion, driven by elevated activities around technology stocks.

Total trading volume was 1.2 trillion Hong Kong dollars, up 12% quarter over quarter. U.S. stock trading volume grew by 23% sequentially to 828 billion Hong Kong dollars, mainly due to higher trading turnover of U.S. technology names, many of which handsomely outperformed the market during the quarter. Hong Kong stock trading volume was 372 billion Hong Kong dollars, down 6% sequentially, as investor sentiments were dragged by the equity market correction in February and March.

In this quarter, the financial management business has again seen a strong growth. The total asset holdings of customers reached 3.7 billion Hong Kong dollars, which is 77% of the total growth, which is 17% of the total growth. In Singapore, the currency fund continues to be favored by customers. During the period when the total asset holdings of customers increased by 69%, We also launched a blockchain transaction function to expand the product category. At the end of the first quarter, the penetration rate of wealth management products in Singapore's real estate customers increased from 1% in the same period last year to 15%. In Hong Kong, we enriched the type of structured ticket. Structured ticket assets have increased by more than five times.

Wealth management business recorded another quarter of strong growth, with total client assets climbing to HK$37 billion, up 77% year-over-year and 17% quarter-over-quarter. In Singapore, elevated interest around money market funds led to a 69% sequential increase in total client assets. We also expanded our product offerings by introducing bond trading. As of quarter-end, 15% of our paying clients in Singapore held wealth management products, up from 1% in the year-ago quarter. In Hong Kong, we bolstered our structured product offering by launching fixed coupon notes and digital notes. These products gained traction among our high-net-worth clients and structured product asset balance, as a result, grew by five-fold quarter-over-quarter.

At the end of the first quarter, we had 353 IPO distributors and investors and 662.1 SOAP customers, with 37% and 44% growth respectively. In this quarter, we, as the leading partner in the practice, participated in many large-scale Hong Kong IPOs, including Meili Park and Lehua Entertainment. According to WANDA's data statistics, in the first quarter, we participated in nine Hong Kong IPOs as sellers, and ranked first in all exchanges.

We have 353 IPO distribution and IR clients, as well as 662 ESOP clients as of quarter end, of 37% and 44% year-over-year, respectively. We acted as jointly managers for several high-profile Hong Kong IPOs, including those at Beauty Farm Medical and Health Industry and YH Entertainment Group. In the first quarter, we underwrote nine Hong Kong IPOs and ranked first among all brokers, according to WINS.

I am pleased to announce that our wholly owned Malaysia subsidiary has received the approval and principal for the Capital Market Services License

from the Securities Commission Malaysia. We look forward to tapping into the immense market opportunity in Malaysia and further strengthening our presence in the Southeast Asian market. Next, I'd like to invite our CFO Arthur to discuss our financial performance.

Thanks, Leeb and Daniel. Now, please allow me to walk you through our financial performance in the fourth quarter. All numbers are in Hong Kong dollars unless otherwise noted. Total revenue was 2.5 billion, up 52% from 1.6 billion in the first quarter of 2022. Brokerage commission and handling charge income was 1.1 billion, an increase of 12% year-over-year and 3% Q-over-Q. The year-over-year increase was mainly driven by a higher lender commission rate of 8.8 basis points. The Q-over-Q increase was primarily attributable to higher U.S. stock trading volumes. Interest income was $1.3 billion increase of 125% year-over-year and 14% Q-over-Q. The increase was driven by higher interest income from cash deposits and higher security lending income. Other income was $126 million of 29% year-over-year and 34% Q-over-Q. The year-over-year and Q-over-Q increase were both driven by higher funder distribution income. Our total cost was $291 million, increase of 28% from $228 million in the first quarter of 2022. Brokerage commission and handling charge expenses were $72 million, down 25% year-over-year and up 13% Q-by-Q. The expenses didn't move in tandem with our brokerage commission and handling charge income, mainly due to cost savings from our U.S. self-clearing business. Interest expenses was $131 million, up 234% year-over-year and down 28% Q2. The year-over-year increase and the Q2 decrease were both driven by interest expenses associated with our security lending business. Processing as a service cost was $88 million, down 5% year-over-year and 9% Q2. The year-over-year decrease was mainly due to lower product service fee as a result of system optimization. The Q over Q decrease was mainly due to lower market information fee and the data transmission fee. As a result, total gross profit was $2.2 billion, increased by 56% from $1.4 billion in the first quarter of 2022. Gross margin was 88% as compared to 86% in the first quarter of 2022. Operating expenses were up 7% year-over-year and down 2% cube-by-cube to $804 million. R&D expenses were $355 million, up 26% year-over-year and 6% cube-by-cube. The increase was mainly due to increasing R&D headcount as we continue to support new product offering and invest in product localization in new international markets. Selling and marketing expenses was $141 million, down 51% year-over-year and 80% Q2. Expenses declined due to decelerating client acquisition amid weak market sentiments. GMA expenses was $308 million, up 73% year-over-year and down 75% Q2. The rise was primarily due to the increase in headcount for general and administrative personnel to support our international business. The expenses declined Q over Q as we recorded one more professional service fee for our proposed Hong Kong listing last quarter. As a result, our net income increased by 108% year-over-year and 24% Q over Q to $1.2 billion. Net income margin expanded to 48% from 35% in the same quarter last year, mainly due to strong revenue growth and lower marketing spending. That concludes our prepared remarks. We now like to open the call to questions. Operator, please go ahead. Thank you.

Thank you. To ask a question, you'll need to press star 1 and 1 on your telephone and wait for your name to be announced. And to withdraw your question, you can press star 1 and 1 again. Please stand by while we compile the Q&A roster. We'll now take our first question.

Please stand by. Please stand by while we compile the queue. Once again, if you do have questions, it's star 1 and 1. Thank you. We now have the first question ready.

And this is from the line of from Morgan Stanley. Please go ahead.

I have two questions. The first question is about the expansion of overseas. Because we see that the growth in the first quarter in Singapore is still very good. And I would like to ask the manager to give more colors in the new markets in the United States and Australia. What new products do we have in the first quarter? And what new strategies will there be in the future? Then, as I mentioned earlier, the principle-based acquisition of the Malaysian license plate, we will take a step forward in some of the new projects in Malaysia and some of the local operations that will need to be done. What are some of the new views? Let's share with the manager. The second question is about the changes in the latest supervision. We see that the main consideration is that after the application is downloaded in China, I would like to ask the manager what will affect the continuous use of the mass customer, and in what aspects will we uh uh So my first question is around the overseas expansion. We have been seeing very encouraging progress in Singapore in the first quarter. So water management could give more color on the U.S. and Australia market developments. And also regarding the new entrance in Malaysia market, any plans and also localization in that market will be greatly appreciated. And second question is around the latest regulatory change with the removal of the app from the onshore app stores, and just wondering how would that impact the existing onshore users, their experience, and how is the company's plan to continue to provide high-quality service to those existing clients? And maybe longer term, how do you think about the existing TAM, the TAM of existing onshore clients would change going forward, and also how would the competition change going forward? Thank you.

Thank you, Chiyo. I think the first question, Daniel and Robin can give you some colors about our first quarter achievements in Australia and in the U.S. Also, you know, our ambition plans for entering into Malaysia potentially in the second half of this year. For your second question about, you know, CSRC, the mainland regulation implications, I think, you know, Leif will give you some you know, more colors in terms of the implications for our existing users. I can, you know, just supplement some, you know, initial data in the past week, which we observed. Hopefully it will be helpful to you.

Hello, thank you for the question.

Hi, I'm Robin. Let me answer the question about Malaysia first. Then I will answer the question about the US, Australia and the regulatory system. Thank you. As you know, we have also issued an announcement that we have just obtained the principle skin of the Malaysian regulatory system for our securities. Next, we will start investing in the entire Malaysian market Thank you.

Let me talk about Q2 and Q2 in the US.

In Q1, the customer speed in the US has slowed down. This is mainly due to our strategy of sorting and optimizing localization. We also want to put the focus on improving customer quality. In Q1, we started to support the features of the US stock combination market. We are also planning to make up for the high-end features such as cross-order orders this year. to strengthen the core product capabilities of U.S. stocks, stocks and eye products. In the future, we will also increase the product recognition level here through exclusive bidding content and in-house activities. We will continue to attract customers through product power and improve the quality of customers. In Australia, we have increased the number of customers in the first quarter. After the accumulation of more than a year of market time, the brand's popularity in Australia has also been continuously strengthened. Through market research and practice, we are now more clear about the target customer base in Australia, and have adopted different ways to train brand awareness and customers in people who are in different stages of trading. In Australia, we will continue to supplement the product capability here to improve the movement of customer demand.

Thank you.

So for Malaysia, we just received the approval in principle for the capital markets license from the Securities Commission Malaysia. And next, we'll start building local teams and work on product and research and development. So far, we haven't set a date for the official launch in Malaysia, and we'll update the market when we have more information. And in terms of the U.S. market, our growth in U.S. slowed down during the first quarter. primarily because we were mapping out and optimizing our localization strategy with a focus on improving client quality. And we started to offer the U.S. multi-leg options trading function in the first quarter, and we plan to launch advanced function and products such as bracket orders this year, while continuing to strengthen the core product capabilities around U.S. stocks and derivatives trading. And in the future, we'll also offer tailored investor education contents and activities to enhance brand awareness, attract clients through superior product offerings, and improve client quality. And for the Australian market, in the first quarter, our client acquisition in Australia has increased. And after more than a year of brand building, our brand awareness in Australia continues to improve. And based on our market research, owning on our target client profile, and have adopted different methods to cultivate brand awareness and acquire clients with different backgrounds. We plan to continue to launch product functions and develop deeper customer insights in Australia.

For our customers, according to the statement of China's press spokesman on February 15, China's press spokesman on February 15, China's press spokesman on February 15, the transaction of stock investors is actually not affected. So the amount of funds should meet the requirements related to the management of the national foreign exchange. Currently, all the transaction functions of our stock customers are normal. In addition, based on our communication with the supervision, we understand that mainlanders who already have securities accounts in Hong Kong and other exchanges are defined as such stock mainland customers. So this part of the population can actually be opened up by FUTU. Whether it's a deposit or a transfer, it can become a customer of FUTU. So currently, regarding the APP, we have actually made some proper arrangements. So whether it's upgrading or providing this spare channel, the service can also be secured. Currently, all of the stock customers So based on CSRC's announcement on December 13th and the statements made on February 15th in response to a question from reporters,

The existing clients' tradings will now be affected, and the existing clients can continue to trade through their existing offline financial institutions. And for these existing clients to deposit more funds, it is allowed as long as they satisfy the requirements from SAFE. And currently, for our existing clients, all of their trading activities and some deposit activities are as usual. And besides, the regulators further clarified that existing clients are defined as clients that already have trading accounts with actual brokers. So for mainland Chinese clients that have open trading accounts with other Hong Kong brokers, we are allowed to open accounts for them. And the fund deposits and stock transfer from other brokers to us are also allowed by the regulators. And in terms of our app upgrades, we have issued guidances on our website and our app to guide clients on how to timely upgrade the app to the latest version. And we think our current services to the existing clients are not jeopardized. And if they have questions during the upgrades, they can call our customer service line and ask questions through the app at any time, and we resolve client requests very timely. Thank you.

Yes, and also I want to supplement, if I may, some initial observations since we published an announcement to remove our app from domestic Apple stores last Tuesday. We are very delighted that it seems that our existing China clients population are very calm about this headline news. we do not see any meaningful, you know, abnormal churn rates and also the client net asset outflow in the past week.

Thank you.

We'll now take our next question. Please stand by. This is from the line of Cindy Wang from China Relations. Please go ahead.

Thank you for the opportunity to ask this question. I also congratulate you on your performance this year. I have two questions I would like to ask. The first is about the commission rate. We saw that the commission rate dropped a little in the first quarter. I would like to know if the major impact is caused by the rebound in the stock market, or is it due to the small amount of extended products in the first quarter? In the next few quarters, how do we look at the trend of the commission rate? So thanks for taking my questions. So I have two questions. First question is related to commission rate. The commission rate has slightly down sequentially. So may I know what's the reason behind it? Is that because of the U.S. stock rebound impacted or the lower derivative trading in the first quarter? The second question is we think we've seen the news about the food is going to open the first shop in Hong Kong. Could management let us know what kind of services this shop will provide? And could investors open trading accounts through the shop in the future? Thank you.

Thank you, Cindy. I will take the first question. And for the second question, Liv, we are answered. In terms of commission rate, you are right. I think the fluctuation is due to the two reasons you both mentioned. Number one is primarily due to the use of trading patterns as we elaborated. to the market several times. It is more due to the US market rebound, especially for these tech names, big tech names in the first quarters. I think going forward, we do not feel any strong competition in terms of pricing in Hong Kong and in other markets. Of course, there will be some natural fluctuations from the quarter-to-quarter perspective due to the U.S. stock trading pattern. And also, in the second quarter so far, given the market is trading in a very narrow range bond, So what we see, the client's activities on the derivative side, especially on the option and the future, start to be decreased on a queue-on-queue level. So this will have some implications in the second quarter blender commissions.

I hand over to Lee for your second question.

About our offline experience store, we have been preparing for a long time. Maybe during this period, because when the store was renovated, there were some re-paintings of these brands and logos, so it attracted everyone's attention. When we do offline experience stores, we actually refer to Apple's offline store mode, which allows everyone to feel our products in all aspects, to understand our services, including We also hope to be able to answer some questions face-to-face in a more in-depth and specific way. That is also for us to make further steps in the Hong Kong market to reach our customers that we cannot fully reach online. After all, we have reached a certain market share rate in Hong Kong. We also hope that through this online experience mode,

We actually have plans to open offline stores for a while, and we have been preparing for it. I think recently we are going through renovations at the offline store, so probably the logo attracted media attention. And the reason we opened this offline store was actually drawing inspirations from Apple's offline store. I think this store will help our potential clients better experience our products and services, and also we can answer a lot of their questions face-to-face. As we continue to increase our client penetration in Hong Kong, I think this store will help us reach the clients that we are not able to reach through online channels and further expand our client acquisition channels. Thank you.

Thank you.

And we'll now take our next question. Please stand by. This is from the line of Zoe Zung from Jefferies. Please go ahead.

Thank you for accepting my question. First of all, congratulations to the company for achieving a strong performance. I also have two questions to ask. First of all, I would like to ask about our stock market strategy this year. Because I saw that the sales cost and stock market cost of the first quarter have decreased. But recently I also saw that the company has done a lot of promotion in Hong Kong. Q2 and the whole year or in the future, what is our stock market target and cost? My second question is about wealth management. Thank you. I will translate it quickly. Thanks management for taking my questions. Congratulations on the solid results. And I have two questions. So first, could you please provide some color about our user acquisition strategy this year? We have noted that in Q1, our sales and marketing expenses and the customer acquisition cost both declined sequentially. Recently, we have seen companies more promotion in Hong Kong. So just wondering what's our user acquisition target and the cost in Q2 for year and the longer term. And my second question is about our strategy for wealth management business. Will we launch our own fund products, or do we just perform as a distributor? Thank you.

Thank you, Zoe. I will take both of your questions. I think, number one, in terms of the client acquisition, you In the first quarter, they imply the CAC is roughly in line with what we achieved in the fourth quarter of last year. I think going forward, despite, you know, of course, you know, second quarter should be, you know, even more challenging given the market condition, especially in Hong Kong. The index is trading in a very narrow range and there is no meaningful IPO project to the market. So it will have some negative implications to our client acquisition. But having said that, I think overall our CAC target this year should be similar to compared with last year. Particularly in Hong Kong, we will continue to double down our efforts in terms of the market share gains, not only just to the millennial generations, which we used to take into. But as Lee and Robin mentioned before, we were also focusing on some new populations, such as the female population, and also the clients over the age of 40s. Number two, in terms of wealth management, I think you are right. In the foreseeable future, our role will still be the facilitator or distributor to our clients. We do not have any confirmed time schedule or plan to package our products by using our own money. Thank you.

Thank you.

Thank you. We'll now take the next question. Please stand by. This is from the line of Frank Shen from Credit Suisse. Please go ahead.

Thank you, Manager Chen. I have two questions. The first question is about interest income. Could you please help us to separate the interest income of this system? How much of it is saved? How much of it is used? Could you please help us to separate the interest expense The second question is about the cost. What is the goal for this operating expense increase company? Is there room for improvement in the future? I will answer it briefly. Thank you, management. This is Frank from Credit Suisse. I have two questions. The first one is on the breakdown of interest income in terms of return on deposit and return on the margin financing success landing business. And similarly, what are the sizes of each component of interest expenses? And secondly, how should we think about the growth rate of operating expenses going forward? Will the company take some measures to optimize the expenses? Thank you.

Thank you, Frank. I will take both of your questions. In terms of the breakdown of the interest income, as you can imagine, We are key beneficiaries of the US rate up cycle. So in the past several quarters, you can see our interest income continue to increase sequentially, largely due to the federal rate hike and also the liquidity situations in Hong Kong. So you can imagine the majority of our interest incomes come from the client's EIDL cash deposits nowadays. Having said that, you can see our margin balance also increase the Q over Q in the first quarter. So the absolute contribution from margin business also is very healthy. In terms of your second question regarding the operating expenses, I think we have given some guidance to the market in the last earning call. We're looking for roughly 15% to 20% headcount increase year-over-year, primarily to support our international market expansion. Most of these headcount increase will be on the IND side. Of course, there will be new overseas office opening. So there will be associate rental expenses and also the security activity colleagues be placed in these local markets. I think going forward, definitely there will be more some rigorous expenses control, especially on the G&A expenses, which we can see there's still some room to further enhance. But I think in terms of the R&D, which we think it is not expensive, to some extent we think it is an investment. So we will continue to make a huge effort on the R&D, which will be our core advantage compared with our peers.

Thank you. Thank you.

We'll now take the next question. Please stand by. This is from Leon Key from Daiwa. Please go ahead.

Thank you very much for giving me this opportunity. I am Leon Key from Daiwa. First of all, I would like to thank the management for achieving a very good performance. My first question is that I still want to return to the domestic supervision. In fact, in the past, whether it was December 30th last year or February 15th, the In the announcement, we talked about a few principles. One of them is to effectively dissolve storage. We would like to ask the management to discuss with us how the management can effectively dissolve storage. Because it looks like the storage is not moving at all. I don't know if it will affect the future. The second question is about our financial management business. We see that financial management business, whether it is QMQ or AOM, the growth of AOM is very bright. We are also constantly launching new products. Maybe if we look at it a little longer, does the management team have a plan? In the end, our financial management, that is, the AOM of the buyer's business, and the AOM of the brokerage buyer's business, including the main one so far, what is the proportion? I will translate it in English. Thank you for taking my question, and congratulations on the very strong results. I have two questions. The first one is still on the regulations from the mainland China side. We noticed that from CSRC's public announcement, one of the principles from the regulator is to effectively dissolve the existing users' Just wondering if management could share with us any color on what's the latest steps from the regulator at the moment on the existing client base. And the second question is on the wealth management business. We did appreciate the very strong AUM growth on the wealth management business. From a longer term, just wondering how management sees the AUM of your wealth management business, which is a buy-side business. how does your buy-side AUM would compare with your sell-side traditional brokerage AUM? Just appreciate if Mary can give us any long-term color on that. Thanks a lot.

Thank you, Leo. Maybe I take your second question first. I leave the first question to Liv to give you some more sharing about the regulations for the existing clients. You can understand we are actually a very dedicated apprentice of Charles Schwab in the United States. So I think a lot of lessons we learned from Schwab is that eventually we want to be asset aggregators for our users and provide their lifetime financial service down the road. So far, we do not set any specific targets in terms of portions between the wealth management AUM versus our clients trading AUM. But I think now the wealth management AUM roughly accounts to close to 10%. of our total clients assets. I hope such proportion will continue to increase to 20 to 30% in the next three to five years. Definitely there will be a very long journey to go. As you can imagine, wealth management is a business which time is your friend. But I think we are fully dedicated and fully committed on, you know, these directions to rowing the snowboard step by step. Now I will hand it over to Liv for your first question about the main regulations.

It will not be to clear up the stock market customers, but to naturally dissolve on the basis of serving the stock market customers. So because of investment customers, investment accounts will have investment losses or customer investment funds to turn to other uses. There will be a certain degree of natural loss here. When there is no growth, then as time goes by, the growth will naturally dissolve.

Based on the spirit of CSRC's announcement on December 30th and statements made on February 15th, resolving existing business is to let clients turn naturally while providing them with proper services, not turning them away. Clients would stop trading due to investment losses or when they need their funds for other purposes. which will lead to a natural churn for clients. And without new clients, the number of existing clients will reduce as time goes by. Thus, serving existing clients well is the prerequisite for orderly resolving existing clients. Thank you.

Thanks a lot.

Thank you. We'll now take our next question. Please stand by. And this is from Han Piu from CICC. Please go ahead.

I also have two questions to ask, mainly about the overseas market. First, I would like to ask about the Malaysian market further. I would like to ask the management team why they chose Malaysia as the opening of a new market. Do we have more information about the market, including space, local competition, local user behavior, and basic situations of product supply that can be shared with us? The second question is about the Singapore market. We see that the number of users and customer assets in the Singapore market has always maintained a trend of rapid improvement. I would like to ask what level is the current customer base in the Singapore market? If we look at the first batch of customers in the first quarter of 2021, what is the current status of this batch of customers? Is this batch of customers already in a state of profit and loss balance and starting to profit? I will also analyze the two questions on my side. Firstly, could you please share more about why we choose Malaysia as our new market? And do we have more information to share about the market room, the competitive landscape, the local investor behavior, and the product supply in this market? And secondly, regarding the Singapore market, we see both the paying clients number and the average client assets keep growing quarter over quarter in the Singapore market. If we see the cohort of the first batch in the first quarter of 2021, like two years before, how was their average client assets and their solo and fund inflow? Have they reached a big even point and they start to make the profit? Thank you.

Okay, thank you. Maybe my colleagues, Robin, can answer the first question about the competitive landscape. and also our competitive advantage in Malaysia. And I will take your second question. Robin, please.

Okay. Let me introduce the market situation in Malaysia. We also did some research. The population of Malaysia is about 33 million. Among them, the Chinese population is more than 20%. And by 2022, The active retail trading accounts of Malaysian stocks have 2.1 million, and the trading accounts of US stocks, Hong Kong stocks, and Singapore stocks have a volume of hundreds of thousands, and there is a trend of constant rise. The trend of Malaysian retail securities markets to present youth and onlineization is that of the new personal accounts opened in 2022, 59% are from 23 to 45-year-old individual investors, so this market scale is still OK in our opinion. In addition, the competition pattern in Malaysia and our advantage in the Malaysian market. Malaysia is currently mainly based on traditional banking brokerages. Online brokerages are starting to slow down. But due to the trend of retail investors to become more young, the acceptance of Internet products is relatively high. The potential of online brokerages is huge. The mainstream Internet brokerages currently include S-bit, which was launched by Le Tian in Japan, and the local Mplus. These are the two Internet merchants. The overall scale is still relatively small, and the product capability is relatively basic in comparison. In addition, there is no deepening of community operation and information. In addition, in comparison, our product capability has a stronger advantage, including more rich product types, high-end industries, order types, and analysis tools for the basic and technical aspects. In addition, the cost of trading in foreign stocks in Malaysia is very high. For example, the cost of each stock is between 10 and 25 US dollars. We can greatly reduce the cost of trading in foreign stocks, which can also bring us certain competitive advantages. Finally, we have active community information and rich investment materials, as well as strong Internet operating capabilities. So the population of Malaysia is around 33 million, with the Chinese population accounting for about 20%.

And as of 2022, there were about 2.1 million active retail trading accounts for Malaysian stocks. while the number of trading accounts for U.S. stocks, Hong Kong, and Singaporean stocks are in the hundreds of thousands and are constantly rising. And we observed that the retail participants in Malaysia are young and are highly accustomed to digitized products. And among the new personal accounts opened in 2022, 59% of them come from investors aged 23 to 45. Currently in Malaysia, the traditional bank-affiliated securities firms are dominant, while the online brokers started relatively late. However, due to the overall trend of younger retail investors and their high acceptance of internet products, we think there is huge potential for online brokers to further penetrate. Mainstream internet brokers such as Rakuten's iSpeed and Mplus are relatively small in scale, and their product capabilities are pretty basic with almost no social community operations. And on the other hand, our product capabilities have strong advantages, including a wider variety of products, advanced market data and order types, and rich fundamental and technical analysis tools. And in addition, the trading fees for foreign stocks like U.S. stocks are pretty high in Malaysia, with each trade costing as much as $10 to $25 U.S., and FUTU can greatly reduce the trading costs of these offshore stocks. And finally, we have an active social community, rich investor education materials, and very strong internet operational capabilities, all of which we think can provide Malaysian investors with a very differentiated experience. Thank you.

Thank you, Daniel and Robin. For your second question, we entered into Singapore markets roughly two years ago. So the first batch of our clients' cohort assets increased by two to three times in the past two years. We are very encouraging to see the clients' cohort and also the clients' retention. So now for the first batch, the clients which we acquired two years ago, they have already surpassed our client's acquisition cost, which means contribute operating profit nowadays. I think we are extremely confident about our profitability and earning powers in the Singapore markets alone, not only just because of the, you know, our cohort will continue to enhance our output and the client access, but more importantly, there will be a lot of initiative efforts to cutting the costs down, not only the operating costs, but also the clearing costs such as our US stock trading, which we still deal with our Singapore-based clients through our external partners. In the second half of this year, we do have a plan to gradually migrate our US stock trading for Singapore clients from external partners to our internal US clearinghouse. So this will also meaningfully decrease our cost relating to the US stock trading, which will further enhance our profitability in Singapore. Thank you very much.

That's very helpful. Thank you very much.

Thank you. And I will now hand the conference back to Yuan for some closing remarks.

That concludes our call today. On behalf of the food 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.

Thank you. This does conclude the conference for today. Thank you for participating.