Futu Holdings Limited

Hello, ladies and gentlemen. Welcome to Futu Holdings' first quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question and answer session. Today's conference call is being recorded. If you have any objections, you may disconnect at this time. I'd now like to turn the conference over to your host for today's conference call, Daniel Yuan. Chief of Staff to CEO and Head of IR at VUTU. Please go ahead, sir.

Thanks, Operator, and thank you for joining us today to discuss our first quarter 2024 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 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. With that, I will now turn the call over to Leif. Li will make his comments in Chinese, and I will translate.

Thank you for attending today's conference. This quarter, thanks to the strong performance of the market and the efficient execution of the new market strategy, our number of real estate customers has increased by 24%, reaching about 1.9 million. In one quarter, the number of competitors with real estate customers reached 1.7 million. Compared to the three times of the same period last year, it is the third highest quarter of competitors with real estate customers in history. Thank you all for joining our earnings call today.

Boasted by strong market performance and solid execution in new markets, we wrapped up the quarter with approximately 1.9 million pain clients, representing a 24% growth year over year. In the first quarter, we added 177,000 pain clients, which more than quadrupled from the year-ago quarter, marking third-highest quarterly growth in history. Three months into the year, we have already achieved over 50% of our full-year guidance of 350,000 NENU pain clients. Given the year-to-day momentum, we would like to raise this guidance to 400,000 for now. Despite the rapid expansion of our client base, our quarterly paying client retention rate remained above 98%.

Hong Kong and Singapore, with faster delivery speed, have achieved double-digit return growth. However, as other markets have achieved a stronger return growth of triple-digit, their contribution ratio in the group competition for real estate customers has dropped by about one-third.

Client acquisition in Hong Kong and Singapore both accelerated to double-digit sequential growth. Yet, their contribution to new paying clients dwindled to around one-third amid strong triple-digit new paying client growth in other markets.

In Japan, we continuously polished product experience, optimized opening process, and conducted targeted market promotion activities. In Japan, our continued focus on refining product experience and streamlining the account opening process, coupled with targeted marketing initiatives, led to robust growth in new paying clients and average client assets.

In addition, our Moomoo app continues to garner user interest in Japan, with cumulative downloads reaching 1 million in May.

Due to our industry-leading product transaction experience, rich market market and information, interactive community, and outstanding platform influence, we have achieved a growth beyond our expectations in Malaysia. Customer participation and transaction activity have exceeded our expectations. With only six weeks of online voucher business, we have attracted more than 100,000 open customers. In Malaysia, our industry-leading trading experience, rich market information and data, interactive social community, and superior brand equity led to an above expectation growth.

client engagement and trading velocity also surprised us on the upside. Within six weeks of our brokerage business launch in Malaysia, we attracted over 100,000 registered clients and became the most downloaded financial app. Though client acquisitions accelerated into the second quarter, we still expect meaningful contribution from Malaysia for the rest of the year and are committed to defending and extending our market leadership.

We have planned a wide range of trading products and product features for each market. In the end of March, we will launch the Japanese stock trading function in Japan, and in April, we will open this function to Hong Kong and Singapore customers. We also plan to launch the Sui Sui stock transaction in Japan in the next few months. Nissan, the stock exchange, the financing transaction, and the joint fund will further expand our product category. We will also launch in Hong Kong and Singapore The currency trading service is expected to be more currency-based than stock trading. In Australia, we have recently launched U.S. shares, U.S. bonds, and U.S. bonds. In Canada, we have launched two types of registered accounts, a retirement account and a tax-free account, and a U.S. bond bond trading function. We also plan to launch a Hong Kong stock trading function in the future.

We have a rich pipeline of new products and features in all markets. In late March, we launched Japan equities trading in Japan and subsequently in Hong Kong and Singapore in April. We also intend to launch fractional shares trading, NISA savings accounts, margin trading, and mutual funds in Japan in the coming quarters. We'll also start offering crypto trading in Hong Kong and Singapore, and we expect much higher take rates and equities trading. In Australia, we recently launched fractional shares options, and recurring investments for U.S. stock trading. In Canada, we introduced self-directed registered retirement savings plan, tax-free savings account, U.S. options trading, and will soon roll out Hong Kong stock trading.

客戶總資產環比增長7%,同比增長11%,達到5,180億港幣。 各市場的進入金都維持了強勁勢頭。 This is due to the decline of some technology stocks, which has a negative impact on the stock market. In Singapore, as customers continue to invest in stock market and cash management products, the total and net assets of customers increase by 25% and 15% respectively.

Total client assets increased by 11% year-over-year and 7% quarter-over-quarter to HK$518 billion. We continue to experience strong asset inflow across all markets, which more than offset the drag on clients' Hong Kong stock holdings from the market depreciation of several technology names. In Singapore, total client assets and average client assets recorded 25% and 15% sequential growth respectively, driven by robust net asset inflow into equities and cash management products.

总交易量环比提升40%,达到1.3万亿港币。 港股交易量环比增长18%至2800亿港币。 Total trading volume rebounded substantially by 40% quarter-over-quarter

to 1.3 trillion Hong Kong dollars. In Hong Kong, trading volume grew by 18% sequentially to 280 billion Hong Kong dollars. Clients showed heightened interest in technology and high dividend names, as well as leveraged and inverse ETFs. High turnover of crypto and AI-themed stocks helped US stock trading volume jump by 48% sequentially to 1 trillion Hong Kong dollars. Margin financing and securities lending balance increased by 14% sequentially to a record high of HK$38 billion.

財富管理客戶總資產達到640億港幣 同比增長73% 環比增長11% 一季度隨著客戶入金流入美國國債 債券資產餘額環比提升21% 在新加坡貨幣基金持續受到客戶青睞 The financial management of the asset has maintained a strong growth trend, increasing by 356%, and increasing by 37%. In order to meet the needs of investors who pursue high-currency products, we have launched a fund-based combination of high-priced steady-state strategy.

Total client assets and wealth management were 64 billion Hong Kong dollars, up 73% year-over-year and 11% quarter-over-quarter. In the first quarter, bond holdings increased by 21% sequentially, thanks to robust inflow in U.S. Treasury bills. In Singapore, wealth management asset balance grew by 356% year-over-year and 37% quarter-to-quarter, as money market funds continued to gain traction. To cater to investor demand for high dividend yield, we launched a fund portfolio with high dividend stable allocation strategy.

Our corporate service has 430 IPO distributors and IR customers, with a growth of 22%. More than 1,200 companies in our community have opened enterprises and retail investors.

As of quarter end, we have 430 IPO distribution and IR clients, up 22% year-over-year. Over 1,200 companies have set up enterprise accounts in our social community to interact with retail investors.

Next, let's welcome our chief financial advisor to introduce our financial performance.

Next, I'd like to invite our CFO, Arthur, to discuss our financial performance.

Thank you, Liv, and Daniel. Please allow me to walk you through our financial performance in the first quarter. All the numbers are in Hong Kong dollars unless otherwise noted. Total revenue was $2.6 billion, up 4% from $2.5 billion in the first quarter of 2023. Brokerage commission and handling charge income was $1.1 billion, up 20% Q over Q, and largely flat year over year. With client trading interest piling on AI and the crypto theme stocks with high stock price, the blended commission rate decreased from 8.8 basis point to 8.1 basis point due to our per share pricing model in the US. As a result, brokerage income grow at a slower rate than trading volume, both Q over Q and the year over year. Interest income was 1.4 billion, a 5% year over year and a 1% Q over Q. The year-over-year increase was mainly driven by higher margin financing income due to an increase in daily average margin balance and higher interest income from bank deposits. The Q over Q increase was mostly driven by higher interest income from bank deposits due to the increase in daily average idle cash balance. Other income was $156 million of 24% year-over-year and 14% Q over Q. The year-over-year increase was primarily attributable to higher fund distribution income, and the Q-over-Q increase was mainly driven by higher currency exchange income. Our total costs were $417 million, an increase of 62% from $291 million in the first quarter of 2023. Brokerage commission and handling charge expenses were $16 million, down 17% year-over-year and up 2% Q-over-Q. Brokerage expenses didn't move in tandem with brokerage income year-over-year, mainly due to cost saving from our U.S. self-clearing business. Expenses grow at a narrow margin than income sequentially due to a non-recurring cost associated with self-clearing migration of Singapore stocks during the fourth quarter of 2023. Interest expenses were $313 million, up 139% year-over-year and 16% Q-over-Q. The year-over-year increase was driven by higher interest expenses associated with our security borrowing and the lending business. The Q over Q increase was mostly due to similar reasons, partially offset by lower margin financing interest expenses. Processing and servicing costs were $97 million, 11% year-over-year, and a down 6% Q over Q. The year-over-year increase was largely due to higher service and the data transmission fees for new markets. The Q over Q decline was mainly driven by lower market information and the data fees as well as lower product service fees. As a result, total gross profit was 2.1 billion and decreased 4% from 2.2 billion in the first quarter of 2023. Gross margin was 81.9% as compared to 88.4% in the year-ago quarter. Operating expenses was up 16% year-over-year and a 2% Q over Q to $930 million. IMD expenses were $336 million, down 5% year-over-year and a 7% Q-over-Q. The year-over-year and the Q-over-Q decrease was largely due to stricter cost control. Selling and the marketing expenses were $293 million, up 107% year-over-year and a 6% Q-over-Q. The increase was driven by our triple-digit year-over-year and the Q-over-Q growth in net new paying clients, partially offset by lower client acquisition costs. G&A expenses were $301 million, down 2% year-over-year, and a 19% Q-over-Q. The year-over-year decrease was mainly due to lower professional service fees, and the Q-over-Q decrease was due to stricter cost control. As a result, income from operations declined 15% year-over-year, and the increase by 17% to 1.2 billion. Operating margins declined to 46% from 56.2% in the first quarter of 2023, mostly due to higher marketing expenses. Our net income decreased by 13% year-over-year, and increased by 18% to 1 billion. Net income margin declined to 39.9% in the first quarter as compared to 47.7% in the same quarter last year. Our effective tax rate for the quarter was 15.2%. That concludes our prepared remarks. We now like to open the call to questions. Operator, please go ahead.

Thank you. We will now begin the question and answer session. To ask a question, please press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.

Once again, it's star 11 for questions.

Our first question comes from the line of Zhiyao Huang from Morgan Stanley. Please ask your question, Zhiyao.

Zhiyao Huang from Morgan Stanley. Zhiyao Huang from Morgan Stanley. Zhiyao Huang from Morgan Stanley. Will the management be able to give more cover to the number of real estate users and human resources? This is the current progress. And if we look at the transfer rate from users to paying clients, compared to other overseas markets in Japan at the same stage, what is the trend? Are there any differences in the transfer rate in the middle? This is the first question. The second question is about the rebound of the entire market since March and April. We believe that the trading activity of customers in Hong Kong and this deposit may also bring a relatively obvious improvement. After all, with this profit and loss effect, we think these benefits may be more obvious. So I want to share with Mr. Guan. Please share this with Mr. Guan. In the second quarter, we have seen the rebound of these entire Chinese related assets on our specific businesses, including the exchange rate of this investment of this customer and this deposit. What new help is there on it? Thank you. Let me simply translate it. I got two questions. First question is regarding the progress we are making in Japan in terms of the number of paying clients, the per client AUM, and also want to have more view on the conversion rate from the app user to paying clients. Is there any difference we are seeing in Japan right now compared to other international markets at a similar stage? So I wonder if management could give more color on that. And second question is regarding into 2Q, we're seeing pretty strong rebound in the China-related assets in Hong Kong and in the U.S. as well. So I wonder what's the help we're seeing right now in terms of client trading activity and found inflows in the second quarter so far we're seeing. Thank you.

Thank you, Chi-Yao. I'll let my colleagues, Daniel, to answer your first question, and I will address your second question sequentially. Thank you.

Hello, Xiao. Regarding the first question about Japan, we saw a significant increase in the speed of delivery in Japan compared to the first quarter. Compared to the first quarter, there is a significant increase in the speed of delivery in the fourth quarter. Compared to the first quarter, there is a significant increase in the speed of delivery in the second quarter. . . . . . I think as we experience some improvements in the gold process, and as some of our products are launched, we see that the conversion rate is clearly increasing in Q1Q. Let me translate for myself. So in Japan, we're seeing very meaningful growth in terms of new paying clients. We saw strong sequential growth in the first quarter, and second quarter, quarter to date, we observed similar strong Q1Q momentum. And in terms of client AUM, I think we're still in the early innings of attracting client assets, but we have seen across client cohorts that they continue to put assets onto our platforms. And in terms of conversion from users to paying clients, that conversion ratio has improved quarter over quarter thanks to a better account opening process and with more financial products rolled out on our platform. But there is still a significant gap in comparison to other overseas markets, whether it's current or when we first launched into that market. I think it's more of a reason because of the account opening friction and the lack of comprehensive financial products. And as Lee mentioned in his opening remarks, we have a very rich product pipeline coming up in Japan in the coming quarters. Thank you.

Okay, let me answer the second question. From the perspective of the performance of the second quarter, as you said, we see that the Hong Kong market has a very strong rebound. This is for the acquisition of our entire Hong Kong customers, including income and trading volume, we will see a continuous improvement. From the data of the first quarter, as you can see, Libby also talked about the trading volume of our entire first quarter, the trading volume of about 75% of US shares. From the perspective of the second quarter, because of the rebound of Hong Kong shares, the trading volume of Hong Kong shares has increased significantly. I believe that the trading volume of different markets will be more even from the perspective of the second quarter. Then the second in the first quarter of this data, we actually recorded a very strong entry level. The overall entry is more than three hundred and fifty billion Hong Kong dollars. That benefits us in the Hong Kong market, the Singapore market and some of our new markets. A strong performance from the second quarter to the present situation. This good performance is also a very strong continuation. So from the point of view of entry-level and customer assets, we still see a very good growth. From the point of view of customers, in the first quarter, we have acquired 1.7 million real estate customers. Of course, some of the customer growth is due to the very good performance of opening up a new market in Malaysia. Let me translate for myself. Number one is we definitely see a very strong momentum recovery in Hong Kong markets, which significantly help our clients' asset inflows in Hong Kong and overall in terms of trading volume, trading velocity, etc. As Liv mentioned in the opening remarks, in the first quarter, in terms of the trading volume breakdown, the U.S. stock trading accounts for roughly over 75% of our total trading volume, and we do expect this ratio will become more healthy given the more contributions in Hong Kong stock in the second quarters. And number two is in the first quarter, we record a very strong net asset inflows, which roughly over 35 billion Hong Kong dollars, thanks to a very strong inflow from our existing markets in Hong Kong and in Singapore, etc. Also, incremental contributions from new markets such as Malaysia and Japan, etc., and we do believe such momentum remains in the second quarter to date. This will significantly help in terms of the client assets and the trading volume, etc. And thirdly, despite we already achieved over 170 fund accounts in the first quarter, partially due to some special reasons in Malaysia due to our grand opening in the first quarter. But we do think the overall momentum on absolute terms remain very strong, despite we expect there can be some Q over Q decrease due to a very high base in the first quarter. Thank you.

Thank you. As a reminder, to ask a question, please press star one one on your telephone keypad.

Our next question comes from the line of

Catherine Lay from JP Morgan. Please ask your question, Catherine. Hi.

Can you hear me clearly? Hello, everyone. I'm Morgan Datong. Thank you for the opportunity to ask me this question. I have two main questions. The first one is, can the management of Malaysia give us a detailed explanation of what the customer image of these Malaysian customers is like? And then their main trading pattern, for example, their exchange rate. Taiwan Taiwan Taiwan Taiwan Taiwan Taiwan How big is it? Let's talk about some of the main barriers in this market. Thank you. This is the first question. The second question I would like to ask is about the fee rate. Because when the management manager talked about the fee rate, there was actually a very obvious decline in the rate of return. Part of it is because the management manager explained that it is because of the fee structure in the United States. So, in the second quarter, with China's ADL stock, which is a small stock with a relatively low rate of return, and then there are various factors such as NVIDIA's soft speed, can we expect that in the second quarter, the trend of the downfall of the cash flow will be relieved? How do we look at this trend? Thank you. That will translate for myself. First, it's about the Malaysian markets. I will appreciate if management can give us some color on the Malaysian market. I heard that clients are very active in trading. Is that one-off or event-driven, or is that a persisting trend? The second question will be more on the commission rates. Do you think that we will see some sequential improvement in the sequential rate? How should we form our expectation? Thank you.

Thank you, Catherine. I will answer the second question first. Then I will answer the first question about Unique Economics. Then I will ask my colleague Robin to add a picture of a Malaysian customer. In terms of the rate, as we explained before, the rate of high-priced US stocks in the first quarter is relatively high. So, like-for-like, we will have a drop in the commission rate. I expect there will be a clear improvement in the second quarter. On the one hand, As Catherine mentioned earlier, there are some high-priced stocks, such as Navita, which will have a split of the stock from June 1st. This will alleviate the disadvantage of our payment model. From the current situation of the second quarter, the total cost of the second quarter is also stable compared to the first quarter. There is no further decline. Let me translate for myself for the second question first. I think the blended commercial rate decrease was mainly due to, you know, our pricing model in the U.S. stock market, as we mentioned before. And according to date, we have seen the ratio has already become more stable, partially due to there was some high-value stock, such as NVIDIA, et cetera, in the U.S., will conduct a stock split. So this will alleviate the pricing pressure in the US. The first question is about the exchange rate of some of the Malaysian customers. From the current perspective, because the time we have entered the market is relatively short, but from the data we have seen so far, whether it is from the entry rate of the customer, the exchange rate of the customer, or the exchange rate of the customer, the overall performance of the Malaysian customers is more than the overall average level of our overseas market. is going to be a lot higher. So basically, from the current situation, we don't feel that some of these features are some of the reasons for some temporary events. Of course, we may need some more time to do some corresponding observations. So I would like to ask Robin to add some details about the picture of the customer. In terms of unit economics in Malaysia, so far, on a cohort basis, we have witnessed a very healthy organic growth in terms of cash inflow, then clients' trading velocity, and also the trading volume, et cetera. It seems that all these matrix in Malaysia is well above the average situations of our or our overall overseas markets. Of course, it is maybe still too early to say, given that we just entered into Malaysia a couple of months ago. We will still keep closely monitoring. But having said that, we think the user behavior demonstrated so far is not just because of some one-off events.

Thank you. Okay, thank you for the question.

Let me answer the first question. Hello, thank you for the question. Let me answer the first question. At the end of February this year, the last week, we officially launched our securities business in Malaysia. And the customers were very active. In a quarter, we contributed about one-third of the competition to our asset customers. We spent 49 days to make Malaysia's uh, uh, uh, uh, We have provided the best investment tools in the Malaysian market. One-stop investment in horse stocks and US stocks, including free real-time marketing and information services. Whether it is from product capability or product experience, it is the leading position in the industry. Finally, a large number of early-stage users are focused on turning into real estate customers in the first quarter. This also contributes significantly to our customers. In addition, in the early stage of the industry, Our Malaysian market goods and services are strong and exceeding the expectations of the Group. Since the second quarter, the number of goods and services of the Group in Malaysia has decreased significantly. This is mainly due to the electronicization and automation of the operating team and the internal team. We are still not completely up to the goods and services rhythm of our entire front end. In order to ensure that the experience of our front end customers is more smooth and to improve the electronicization efficiency of the team, We also need to keep up with the pace of our customers, and monitor and monitor the data models of our customers, so that we can make more scientific operations and open up the market. Finally, our customer image in the Malaysian market is mainly male, and it is a male with a higher income. In addition, in terms of race, we currently have a larger proportion of Chinese. So, to some extent, this explains why In the Malaysian market, the transaction of customers is relatively frequent. And from the economic model, it has performed very well so far. Thank you.

So, we officially launched our brokerage business in Malaysia by the end of February, and we've experienced very rapid growth. So, in the first quarter, Malaysia contributed about one-third of our Nanyupeng clients. And within 49 days of official brokerage business launch, we achieved number one in total cumulative downloads in Malaysia. And I think the reason why we can grow so quickly in Malaysia can be attributed to several factors. First of all, we were already the biggest online broker in Singapore when we entered in Malaysia, and that brought us a lot of brand recognition. And secondly, we simply offer the best product in Malaysia. One-stop platform where you can invest in Malaysia equities, U.S. equities, and we have free market data and information, which are all industry-leading. And last but not least, we have also accumulated a large number of users. Before our official brokerage business launch, we were able to convert a very meaningful chunk of those users. I think the first quarter growth was above our expectations, but going to the second quarter, we believe the contribution of Malaysia will come down sequentially. I think that is because there is still room for improvement in terms of the level of automation in client account opening, asset inflow and outflow in operations to Sadara. So in order to ensure that our clients can have a very smooth experience and to increase our operational efficiency, I think we dynamically adjust our client acquisition pace and so as to better inform our growth in Malaysia. And in terms of our client profiles, most of our clients in Malaysia are male and have higher income. And in terms of ethnicity, a lot of them are the Chinese population. I think that partly explains the high trading turnover and relatively higher average asset than we expected, which will probably lead to favorable payback period in Malaysia.

Thank you.

Right. Thank you. Once again, to ask a question, please press star 1 1 on your telephone.

I'm showing no further questions, and I'll turn the conference back to Mr. Daniel Yuan for closing comments.

That concludes our call today.

On behalf of the FUTU management team, I would like to thank you for joining us today. 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. That concludes today's conference call. Thank you for participating. You may now disconnect.