This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk06: Hello ladies and gentlemen, welcome to Futur Holdings second quarter 2023 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.
spk11: Thanks, operator. And thank you for joining us today to discuss our second quarter 2023 earnings results. Joining me on the call today are Mr. Leif Lee, Chairman and Chief Executive Officer, Officer 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 bits 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 annual report on Form 20F, With that, I will now turn the call over to Leif. Leif will make his comments in Chinese, and I will translate.
spk05: Thank you for participating in today's conference. In the second quarter, we have added more than 57,000 real estate customers. The total number of real estate customers is close to 1.6 million by the end of the year. Each market has seen a strong growth in customers from natural flows, which has led to a 41% increase in the number of real estate customers compared to the previous quarter. In the second quarter, The Hong Kong market has contributed about one-third of our competitors' real estate customers. The offline channels in Hong Kong have helped us attract a lot of older customer groups. With the guidance of our staff, they understand the opening process and explore product functions. In the second quarter, the U.S. stock market has shown strong performance, and the interest rate of the monetary fund is also extremely attractive. Such an industry has led our Singaporean real estate customers to make good growth. In the U.S., As we continue to optimize our sales channels and provide customer benefits, we have attracted more and more high-quality customers. Although the overall performance of the stock market is weak, but the group's share of asset customers is still above 98%.
spk11: Thank you all for joining today. I'm pleased to announce that we acquired over 57,000 paying clients in the second quarter, bringing the total number of our paying clients to nearly 1.6 million. Robust organic growth across all overseas markets drove a 41% sequential acceleration in client acquisition. In the second quarter, Hong Kong market contributed approximately one-third of new paying clients, as effective offline marketing campaigns attracted older clients who prefer in-person instructions on how to open trading accounts and navigate our user interface. In Singapore market, we also witnessed strong paying client growth on the back of U.S. equity market outperformance and the enticing yields of money market funds. In the U.S., we brought in more clients of higher quality as we iterated on marketing channels and client incentives. Despite fragile market sentiments, our group's quarterly paying client retention rate remained above 98%.
spk05: We have expanded the trading product category in each market and upgraded the product function. In order to help customers carry out trading strategies better, we started to provide cross-examination orders for Hong Kong U.S. stock,期权 and期货, and to Hong Kong and Singapore customers, fully open algorithmic order function. In Singapore and Australia, we started to provide customers with the service of specific U.S. stocks and ETFs for day-to-day trading, making U.S. stock trading more flexible and convenient.
spk11: In the second quarter, we continue to roll out new products and features across markets. To help clients better execute their trading strategy, we launched bracket orders for US and Hong Kong stock options and futures, an algorithmic order for all clients in Hong Kong and Singapore. In Singapore and Australia, we now give clients access to certain US stocks and ETFs 24 hours a day, five days a week, thereby enhancing the accessibility of US stock trading.
spk05: The total customer asset has reached 46.6 billion Hong Kong dollars, with an increase of 8% compared to the basic level. The market value of the customer Hong Kong stock market has dropped significantly in the second quarter, but foreign market customers have strongly entered the capital to compensate for the decline in the market value of the Hong Kong stock market and the negative impact of the customer asset. In the second quarter, the Singapore market has also achieved steady asset growth. The total customer asset and the total customer asset have increased by 21% and 12% respectively. The total client assets were HK$466 billion, up 8% year-over-year and slattish quarter-over-quarter.
spk11: Negative mark-to-market impact on clients' Hong Kong stock holdings dragged total client assets. The net asset inflow in overseas markets remained robust, which offset the market impact. Singapore market delivered strong asset growth during the second quarter, with a 21% and 12% quarter-over-quarter increase in total and average client assets, respectively. This was the fourth consecutive quarter, where the Singapore market achieved double-digit sequential growth in total client assets. Margin financing and securities lending balance declined marginally by 1.4% sequentially, as some clients unwound their securities lending position.
spk05: This quarter's total trading volume is 10,000 billion Hong Kong dollars, with a decline of 22%. In the second quarter, Hong Kong shares were weaker overall, Total trading volume declined 22% quarter-over-quarter to HK$1 trillion. Hong Kong stock trading volume was HK$259 billion.
spk11: down 31% sequentially due to clients' waning interest in China technology names given disappointing stock price performance. U.S. stock trading volume was down by 18% quarter-over-quarter to HK$676 billion as trading turnover of technology stocks and leverage and inverse ETFs contracted.
spk05: Taifu managed its total customer assets at HK$431 billion, which increased by 99% in the same year and 17% in the same year. The revenue of monetary funds this quarter is at a higher level, promoting strong growth of customer assets. In Hong Kong, we continue to enrich the overall type of structured products, including fund-linked vouchers and cross-vouchers, to meet the different risk-earning goals of high-end customers. As of the end of the quarter, more than 18% of Singaporean customers hold financial management products, while 2% of the same period last year increased significantly. Singapore's average financial management product, Shichang, was overturned last year. In addition to retail financial management, we also launched a trust account in Singapore to help fund managers directly manage customer assets.
spk11: Total client assets and wealth management were HK$43 billion, up 99% year-over-year and 17% quarter-over-quarter. The sustained high yields of money market funds were the key driver behind this robust asset growth. In Hong Kong, we continue to expand structured product offerings by onboarding phone link notes and call-put spread notes to cater to the diversified risk-return expectations of high net worth clients. In Singapore, over 18% of clients held wealth management positions as of quarter end, up significantly from 2% in the year-ago quarter. In Singapore, average client assets in wealth management more than doubled year-over-year. In an effort to expand beyond retail wealth management, we launched entrusted accounts in Singapore that allow fund managers to manage assets on their clients' behalf.
spk05: At the end of the second quarter, we have 374 IPO sales and investor-related customers, with a growth of 36%. In the first half of 2023, out of 31 companies listed in Hong Kong, 20 of them used our corporate services. This quarter, We have 374 IPO distribution and IR clients at the quarter end, up 36% year over year.
spk11: Of all 31 companies listed in Hong Kong in the first half of 2023, 20 of them have used one or more of our enterprise product offerings. In the quarter, we acted as joint book runners of several high-profile Hong Kong IPOs, including those of YSB and EDM.
spk05: Finally, I would like to share some good news with you all. In Japan, we have a full-fledged subsidiary company, Mumu Securities Co., Ltd., which has officially obtained the approval of Japan's regulatory agencies. Through Mumu, we can carry out online corrective economy and financial management. There are a lot of retail investors in the Japanese market. They have more investment assets. And in recent years, the number of retail investors, online trading penetration rate, and US stock trading penetration rate have also been increasing.
spk11: Last but not least, I am pleased to announce that our wholly owned Japan subsidiary, Moomoo Securities Japan Corporation Limited, is officially approved by the Japanese regulators to conduct its brokerage and wealth management business via our online platform, Moomoo. The Japan market is characterized by its large and growing number of affluent retail investors, high penetration of online trading, and increasing pension for U.S. stock trading. And we are excited to tap into this immense market opportunity. Next, I'd like to invite our CFO, Arthur, to discuss our financial performance.
spk02: Thanks, Lee and Daniel. Before going through our financial performance, I'd like to give you an update on our latest $500 billion share repurchase program announced on March 11, 2022. At the end of the first half, we have repurchased an aggregate of 11 million ADS with approximately $360 million total repurchase amount in open market transactions. It constitutes about 70% of the maximum purchase amount approved under our share repurchase program. Now back to the financial performance in the second quarters. All the numbers mentioned below are in Hong Kong dollars. Total revenues for the quarter were $2.5 billion, 42% from $1.7 billion in the second quarter of 2022. Brokerage commission and handling charge income was $953 million, a decrease of 8% year-over-year and a 12% Q-over-Q. The Q-over-Q decrease was mainly due to the decline in the total trading volume, partially offset by the increase in the blended commission rate from 8.8 basis points to 9.9 basis points. Interest income was $1.4 billion, an increase of 127% year-over-year and 9% Q-over-Q. The increase was driven by higher interest income from cash deposits and higher security lending income. Other income was $127 million, up 37% year-over-year, and it maintained most flat Q over Q. The year-over-year increase was driven by higher fund distribution income. Other income maintained largely stable Q over Q since higher fund distribution service income and the trusted fee were largely offset by lower currency exchange income and the writing fee income and the market information and the data income. Total cost was $375 million, an increase of 80% from $208 million in the second quarter of 2022. Brokerage commission and handling charge expenses was $55 million down 37% year-over-year and 23% Q-over-Q. The decrease was attributable to lower trading volume and cost savings from our U.S. sales clearing business. Interest expenses were $220 million of 729% year-over-year and 68% Q-over-Q. The increase was mainly driven by higher expenses associated with our security borrowing and lending business. Higher funding costs from margin financing business also contribute to Q-over-Q increase. Processing and servicing costs were $99 million of 5% year-over-year and 13% queue-over-queue. The increase was primarily due to higher system usage fee, market information fee, and the data transformation fee also increased on a sequential basis. As a result, total gross profit was $2.1 billion, an increase of 37% from $1.5 billion in the second quarter of 2022. Growth margin was 85% as compared to 88% in the second quarter of 2022. Operating expenses were 18% year-over-year and 6% year-over-year to $852 million. R&D expenses were $363 million, up 25% year-over-year and 2% Q-by-Q. The increase was mainly due to an increase in R&D headcount as we continue to upgrade our infrastructure, support new product offerings, and invest in product localization in international markets. Selling and marketing expenses was $175 million, down 20% year-over-year and up 24% Q-over-Q. The year-over-year decrease was mainly due to lower customer acquisition costs, and the Q-over-Q increase was driven by accelerated client acquisition. G&E expenses were $314 billion of 49% year-over-year and 2% QQ. The increase was mainly due to increase in headcount for general and administrative personnel to support our international business expansion. As a result, our total net income increased by 74% year-over-year and decreased by 6% QVQ to $1.1 billion. Net income margin expanded to 45% from 37% in the same quarter last year, primarily due to strong top-line growth and the lower selling and marketing expenses. That concludes our prepared remarks. We now like to open the call to questions. Operator, please go ahead. Thank you.
spk06: Thank you. To ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. That's star 1 and 1 if you wish to ask a question. Please stand by while we compile the Q&A roster.
spk08: We will now take the first question. One moment, please. From the line of Qiyao Huang from MS, please go ahead.
spk04: Thank you, Guan Lintang. First of all, congratulations, Guan Lintang. Congratulations to the company for a very strong profit growth. I have two questions about the volume of transactions. On the one hand, I see that the volume of transactions of customers in the second quarter will be slightly lower than the volume of transactions in Hong Kong or the US market. Let me briefly translate. So the two questions regarding the trading volume And we're seeing the trading volume slip further than the overall market in both Hong Kong and the U.S. in the second quarter for FUTU. So just wondering what's the implication there. And also, we're seeing the brokerage commission bouncing quite sharply in the second quarter. And roughly, what's the driving factors behind? Thank you.
spk02: Thank you, Chi-Yang. I will take two of your questions. Number one, regarding the trading volume, it is generally just in line with the overall market conditions, particularly in the second quarter, we see the market actually is very challenging across the board, regardless in the US or in Hong Kong. What we observe is actually the trading velocity from our clients both in the US and also in Hong Kong has decreased, but the situation seems to be temporary as we see the trading velocity rebound quarter to day in the second quarter. Then, in terms of the trading commissions, the major reason, as we elaborated several times before, is more related to the client's trading behavior in the U.S. stock. In the second quarter, we see more clients trading these low-value stocks in the U.S. markets, which let our implied blender commission rates become higher versus the second quarter.
spk10: Thank you.
spk09: Thank you. We will now take the next question.
spk08: From the line of Yu Fan from CICC, please go ahead.
spk00: Thank you for giving me the opportunity to ask this question. I'm Fan You from China. I have two questions for you. First, can you explain to us the current structure of our client assets? For example, we can see the distribution of Hong Kong, U.S. stocks, and cash, including large-scale wealth. And then, in terms of our current business structure, if we divide it according to the Hong Kong stock and U.S. stock market, what is the overall ratio? The second question is, can you share with the company the current situation of our clients in this quarter? For example, according to the market, Hong Kong, Singapore, Okay, I will translate. Thanks, management, for taking my questions. This is Yo-Yo Fan from CICC. I have two questions here. The first one is regarding the AUM and revenue breakdown by assets. How much does Hong Kong and U.S. stocks in the wealth management products and also the cash balance account for the total client asset balance? And how much does Hong Kong and US stock market account for the total revenue respectively? The second question is regarding the client net assets inflow. So I wonder what's the assets inflow of clients in Hong Kong, Singapore, and also mainland China respectively.
spk02: I will answer your second question first, and I will leave the first question to Liv. In terms of the net asset inflows in the second quarter, we see a very healthy rebound in the second quarter versus the first quarter, given that we got some negative headline use. in the second quarter, which caused certain clients uncomfortable in terms of their, you know, asset parking in our accounts. So this impact has been fully removed in the second quarters. And to break down among the different regions, Hong Kong actually contributed most of the asset inflows, which followed by Singapore afterwards.
spk07: I need the second question to lead. Let me answer your first question.
spk05: In the past few seasons, the company's overall asset structure has remained relatively stable. The share of Hong Kong stock is slightly higher than that of U.S. stock. The share of wealth management is constantly rising. Until the end of the second quarter, the share is about 10%.
spk11: In the past few quarters, the breakdown of Futu's client assets has remained relatively stable, with more client assets allocated to Hong Kong stocks than U.S. stocks. And the proportion of wealth management assets actually continued to rise in the past couple of quarters, and now accounting for about 10%, by the end of 2Q, which more than doubled year over year. And clients' cash balance accounted for low teens of total client asset balance. And to answer your question regarding the revenue breakdown between Hong Kong and U.S. stocks, Hong Kong stocks usually contributed about 30% of the trading volume. The U.S. stocks contributed 70% of the trading volume. And the blinded commission rate for U.S. stocks is slightly higher. So about 75% of our trading commission actually came from U.S. stock trading. Thank you.
spk08: Okay, thank you very much. Thank you. We will now take the next question. From the line of Cindy Wang from China Renaissance, please go ahead.
spk01: Thank you for giving me this opportunity to ask a question. I'm Cindy from Huaxin Capital. I have two questions to ask. The first is that we see that the number of new customers in the second quarter is actually growing significantly. However, we see that the cost of goods is an effective trend that has a downward trend. Can you please help us analyze it? If we look at the second half of this year, whether the cost of the goods can be maintained at the level of the second quarter. For the second question, I would like to ask about the situation in Japan. Congratulations to the management for obtaining Japan's supervision approval. I would like to ask, because in Japan, we have used the beta version of this application. Can you tell us about the results and the feedback from the customers Thank you management for taking my call. This is Cindy from China Renaissance. So I have two questions. First question is related to the customer acquisition cost. So we see the second quarter, New clients have a good strong sequentially. However, the CSC actually went down. So is that going to be sustainable in the second half of 2023? And the second question is related to the Japan market. So congrats to get the license approval from Japan government. So since we have done the beta version for the Moomoo app in Japan. So can you talk about a little bit more color on what's the effect in the beta version in terms of client feedback and MAU? And is that going to help you to grow your new clients, new new clients members in the second half of this year? Thank you.
spk02: Thank you, Cindy. I will take your first question, and I think Lee will be very happy to share more colors and his thoughts about the Japan market. In the second quarter, the blended client acquisition cost was around HK$3,000 per client. The CAC in Hong Kong was slightly higher than the average. while in the US and in Singapore was lower than the average. I think in the second quarter, we continue to optimize different channels, particularly some offline channel promotions to get very good results. So, our efforts on the acquisition efficiency of target client groups has got a reward. And in the future, we will further dynamically adjust our marketing strategy to improve the efficiency and also the quality of customer acquisitions. Looking into the second half of this year, I personally think the uncertainties still remain across the different markets. But having said that, our view on average CAC will be slightly more optimistic than our view before. Therefore, we think the full-year CAC course may have a high single-digit decrease compared with that of last year.
spk07: Thank you. I hand over to Lee.
spk05: We are in the Japanese market. As a platform for investment information, we have been operating for more than half a year, and we have accumulated and collected a lot of feedback from Japanese users, and we have also followed many community operations methods based on market hot points and user interests to bring a lot of unique value to Japanese users. According to the data we have seen, MUMU is very active in the Japanese community. The ratio between them is about 15%. We believe that there will be a big growth potential in the future. Although Moomoo has not yet launched its trading function, we can see that it has already given some unique value to Japanese users. From the perspective of product capability, Moomoo has provided a lot of functions that local industries have never provided before, including the basic aspects of the visualization of the capital flow of US stocks and Japanese stocks, uh uh It is not limited to Japanese and American stocks. It also includes foreign exchange of the global capital market, all kinds of indexes,期权,期货, and other data. In addition, Moomoo is also the only online investor community platform in Japan. We have introduced a large number of KOLs in the stock market to launch live broadcasts for popular financial events in the community. As mentioned earlier, the community feedback we see is very high. At the same time, we also have a very strong trading product capability, including product category, order type, trading market, and various analysis tools, etc. I think in the future, we will be able to get it in Japan. Regarding a specific business time, after we get the license, we are in the preparation of a tightrope. We hope that in the fourth quarter of this year,
spk11: We have been operating as a pure information and market data platform in the Japanese market for less than a year, accumulating a lot of good feedback from Japanese users. We've also iterated many community networking features based on market trends and user interests. And our data shows that Moomoo's user community in Japan is highly, highly active, with the DAU to user ratio averaging around 15% on trading days, indicating very high engagement and certainly significant growth potential. Although trading function is currently not available on Moomoo in Japan, we believe Moomoo has already brought unique value to Japanese users. And in terms of product capabilities, Moomoo now offers various functionalities that were absent among local platforms, such as visual displays of fund flows covering U.S. and Japanese stocks, fundamental and technical analysis. And secondly, most securities brokers in Japan have a 15- to 20-minute delay in market data, and real-time quotes are provided with a cost. However, Moomoo provides free real-time quotes not only for Japanese and U.S. stocks, but also for foreign exchange options and future state of global capital markets. And furthermore, Moomoo is currently the only online platform in Japan offering an online user community. We've introduced numerous KOLs and conducted live broadcasts for popular financial events in the social community, resulting in very high engagement. And last but not least, we have strong trading capabilities in terms of product categories, order types, trading duration, and various analytical tools. which can also be replicated in Japan in the near future. And regarding our future development plans, after we receive the approval from the Japanese regulators, we are actively preparing and aim to launch the trading functions in the fourth quarter this year to provide Japanese investors with a comprehensive and smooth investment experience. Thank you.
spk09: Thank you. One moment, please.
spk08: We will now take the next question. Coming from the line of Leon Chi from Daiwa.
spk06: Please go ahead.
spk03: Hi, thanks for taking my question. Thank you for giving me this opportunity to ask a question. I'm Qi Xiaoliao from DaHue Securities. I have two questions. First of all, I would like to follow up on the question about the Japanese market that Mr. Leaf talked about. I don't know if from what we have observed so far, from what we have seen in the past, do you think that the online broker competition in Japan is obviously better than the experience we had in the US? I don't know if you have any expectations for the CAC and Payback Period in Japan. This is my first question. I still want to follow up on Japan. The second question is about Hong Kong. Let me recap my questions in English. This is from Daiwa. Thanks for taking my questions. My first question is still regarding Japan market. Would management say that our competitive landscape in the online broker space in Japan is better than the US from the experience that we run our beta version? More specifically, do we have any expectations on CAC and payback period in Japan? And my second question is on Hong Kong. We are very glad to see that recently Fudu has opened an offline experience center in Hong Kong. Many people are very excited about the product offerings. I just want to ask management that what kind of user operating matrix or financial matrix are we expecting from the offline experiences shops? And do we plan to open more offline shops? Thank you.
spk02: OK, thank you. Thank you, Neil. I think the first question can be answered by my colleague, Daniel. And regarding our physical store in Hong Kong, I think Libri is very happy to share more colors and about these sorts.
spk11: Right. So regarding the competitive landscape in Japan, we believe it is a lot more benign than what we saw in the US. We understand that the online securities brokerage industry in Japan is now dominated by a few players. The top five internet brokers, including Rakuten and SBI, now account for the majority of the market share in terms of brokerage trading volume. They have each accumulated over one million clients, among which Rakuten and SBI are the top two players. But overall, we think that the landscape is a lot more fragmented than what we saw in the U.S., and we believe that our current product offers a competitive advantage, a very significant one, over the existing online brokers. And the Japanese market is huge, and as we mentioned earlier, growing rapidly, and we are very confident to obtain a meaningful market share in Japan. Overall, I think since we haven't really started acquiring clients yet, it's probably too early to talk about customer acquisition costs and payback periods. But based on our initial analysis, The Japanese retail investors are generally a lot more affluent than the U.S. investors, and actually there are a lot more ways to monetize on trading in Japan. Let's take U.S. stock trading, for example. It is now industry standards to charge zero commissions for U.S. stock trading in the U.S., while everyone still charges, at least all of the major online brokers in Japan still charges a pretty high commission for U.S. stock trading. So we think generally the investors are wealthier and there are more monetization opportunities in Japan.
spk05: Thank you. Let me talk about the situation of our offline stores. Since July 31st, our offline stores have had more than 1,000 customers. Among them, There are a lot of middle-aged customers who are not familiar with this kind of online opening process. So this part of the customer group is very difficult for us to reach through the online marketing channels before. Then he also helped us want to further penetrate such a picture of a crowd. So the opening of the online store is able to help us to establish a connection with this part of the customer group. It is an important window to improve the reputation of the Hong Kong market brand. No, no, no, no, no, no, no, no, no. The physical store is actually a long-term brand advertisement, which is also beneficial to strengthen the brand recognition and influence in the Hong Kong market. At the same time, we also plan to use the physical store to hold various investment activities, including part of it as an office space for our employees. This will actually reduce some of our office costs. If the effect is good, Since it's opening on July 31st, over a thousand people have visited our experience store, and many of them are middle-aged customers who are not familiar with the online account opening process.
spk11: And previously, it was difficult for us to reach this client group through our online marketing channels, but these happen to be the target customer group that we want to further tap into. So the Experience Door has helped us establish connection with these clients and has become an important channel to enhance Voodoo's brand recognition among this group. In addition, the Experience Door in Hong Kong allows us to make face-to-face communications with these users, and to have a better understanding of food juice products outframes. And according to the data we have collected so far, the customer acquisition cost of experience stores is actually lower than our average Hong Kong market customer acquisition cost. So from a CAF perspective, experience stores can actually help us reach previously underpenetrated client groups and further enhance brand image in Hong Kong at a lower cost. From the perspective of operating costs, we believe that Experience Door really helps us with long-term brand building. And we also plan to use these doors as a venue for various offline investor educational activities, events, and corporate offices, which will further help save costs. And if this Experience Door continues to record very good results, progress in terms of client acquisition, we expect to have more experienced dog stores in Hong Kong. Thank you.
spk06: Thank you. I would now like to turn the conference back over to Daniel Yuan for closing remarks.
spk11: That concludes our call today. On behalf of the FUTU management team, I would like to thank you for joining us tonight. If you have any further questions, please do not hesitate to contact me or any of our investor relations representatives. Thank you and goodbye.
spk06: That does conclude our conference for today. Thank you for participating. You may now disconnect.
Disclaimer