Futu Q1 2024 Earnings Call Transcript

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May 28, 2024

Key Takeaways

  • Paying client growth surged to 1.9 million in Q1 (+24% YoY), with 177,000 new clients added and full‐year net new client guidance raised from 350,000 to 400,000.
  • New market expansions drove strong momentum, with Japan app downloads hitting 1 million and Malaysia’s brokerage launch attracting 100,000 registered clients in six weeks.
  • Total client assets reached HKD 518 billion (+11% YoY, +7% QoQ) and trading volume rebounded 40% QoQ to HKD 1.3 trillion, reflecting robust asset inflows and market activity.
  • Margins compressed as gross margin fell to 81.9% (from 88.4%) and operating margin declined to 46% (from 56%), driven by higher interest expenses (+139% YoY) and marketing costs (+107% YoY).
  • A rich product pipeline is planned, including fractional shares, margin trading, mutual funds, crypto trading and new savings products across key markets.
AI Generated. May Contain Errors.
Earnings Conference Call
Futu Q1 2024
00:00 / 00:00

Transcript Sections

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Operator

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 the CEO and Head of IR at Futu. Please go ahead, sir.

Daniel Yuan
Daniel Yuan
Chief of Staff to the CEO and Head of Investor Relations at Futu Holdings

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. Leaf Li, Chairman and Chief Executive Officer, Arthur Chen, Chief Financial Officer, and Robin Xu, Senior Vice President. As a reminder, today's call may include forward-looking statements, which represent the company's belief regarding future events, which, by their nature, are not certain and are outside of the company's control. Forward-looking statements involving inherent 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 Leaf. Leaf will make his comments in Chinese, and I will translate.

Leaf Li
Leaf Li
Chairman and CEO at Futu Holdings

[Foreign language]

Daniel Yuan
Daniel Yuan
Chief of Staff to the CEO and Head of Investor Relations at Futu Holdings

Thank you all for joining our earnings call today. This quarter spurred by strong market performance and solid execution in new markets, we wrapped up the quarter with approximately 1.9 million paying clients, representing a 24% growth year-over-year. In the first quarter, we added 177,000 paying clients, which more than quadrupled from the year-ago quarter, marking the third highest quarterly growth in history. 3 months into the year, we have already achieved over 50% of our full year guidance of 350,000 net new paying clients. Given the year-to-date 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%. Client acquisition in Hong Kong and Singapore both accelerated to double-digit sequential growth.

Daniel Yuan
Daniel Yuan
Chief of Staff to the CEO and Head of Investor Relations at Futu Holdings

Yet their contribution to new paying clients dwindled to around one-third amidst strong triple-digit new paying client growth in other markets. 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 continued to garner user interest in Japan, with cumulative downloads reaching 1 million in May. 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.

Daniel Yuan
Daniel Yuan
Chief of Staff to the CEO and Head of Investor Relations at Futu Holdings

Though client acquisition decelerated 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.

Leaf Li
Leaf Li
Chairman and CEO at Futu Holdings

[Foreign language]

Leaf Li
Leaf Li
Chairman and CEO at Futu Holdings

[Foreign language]

Daniel Yuan
Daniel Yuan
Chief of Staff to the CEO and Head of Investor Relations at Futu Holdings

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 account, 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 than 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.

Leaf Li
Leaf Li
Chairman and CEO at Futu Holdings

[Foreign language]

Daniel Yuan
Daniel Yuan
Chief of Staff to the CEO and Head of Investor Relations at Futu Holdings

Total client assets increased by 11% year-over-year, and 7% quarter-over-quarter to HKD 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.

Leaf Li
Leaf Li
Chairman and CEO at Futu Holdings

[Foreign language]

Daniel Yuan
Daniel Yuan
Chief of Staff to the CEO and Head of Investor Relations at Futu Holdings

Total trading volume rebounded substantially by 40% quarter-over-quarter to HKD 1.3 trillion. In Hong Kong, trading volume grew by 18% sequentially to HKD 280 billion. 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 HKD 1 trillion. Margin financing and securities lending balance increased by 14% sequentially, to a record high of HKD 38 billion.

Leaf Li
Leaf Li
Chairman and CEO at Futu Holdings

[Foreign language]

Daniel Yuan
Daniel Yuan
Chief of Staff to the CEO and Head of Investor Relations at Futu Holdings

Total client assets in wealth management were HKD 64 billion, 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-over-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.

Leaf Li
Leaf Li
Chairman and CEO at Futu Holdings

[Foreign language]

Daniel Yuan
Daniel Yuan
Chief of Staff to the CEO and Head of Investor Relations at Futu Holdings

At the 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.

Leaf Li
Leaf Li
Chairman and CEO at Futu Holdings

[Foreign language]

Daniel Yuan
Daniel Yuan
Chief of Staff to the CEO and Head of Investor Relations at Futu Holdings

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

Arthur Chen
Arthur Chen
CFO at Futu Holdings

Thank you, Li and Daniel. Please allow me to walk you through our financial performance in the first quarter. All the numbers are in Hong Kong dollar, unless otherwise noted. Total revenue was HKD 2.6 billion, up 4% from HKD 2.5 billion in the first quarter of 2023. Brokerage commission and handling charge income was HKD 1.1 billion, up 20% Q-over-Q, and largely flat year over year. With client trading interest piling on AI and the crypto-themed 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 U.S. As a result, brokerage income grew at a slower rate than trading volume, both Q-over-Q and year over year.

Arthur Chen
Arthur Chen
CFO at Futu Holdings

Interest income was HKD 1.4 billion, up 5% year-over-year, and 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 HKD 156 million, up 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 HKD 417 million, an increase of 62% from HKD 291 million in the first quarter of 2023.

Arthur Chen
Arthur Chen
CFO at Futu Holdings

Brokerage commission and handling charge expenses were HKD 60 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 savings from our US self-clearing business. Expenses grew at a narrow margin with the 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 HKD 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 securities borrowing and lending business. The Q-over-Q increase was mostly due to similar reasons, partially offset by lower margin financing interest expenses.

Arthur Chen
Arthur Chen
CFO at Futu Holdings

Processing and servicing costs were HKD 97 million, up 11% year-over-year, and down 6% Q-over-Q. The year-over-year increase was largely due to higher product service and data transmission fees for new markets. The Q-over-Q decline was mainly driven by lower market information and data fees, as well as lower product service fees. As a result, total gross profit was HKD 2.1 billion and decreased 4% from HKD 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 2% Q-over-Q, to HKD 930 million. R&D expenses was HKD 336 million, down 5% year-over-year, and 7% Q-over-Q.

Arthur Chen
Arthur Chen
CFO at Futu Holdings

The year-over-year and the Q-over-Q decrease was largely due to stricter cost control. Selling and marketing expenses were HKD 293 million, up 107% year-over-year and 6% Q-over-Q. The increase was driven by our triple-digit year-over-year and Q-over-Q growth in net new paying clients, partially offset by lower client acquisition costs. G&A expenses were HKD 301 million, down 2% year-over-year and 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 operation declined 15% year-over-year and increased by 17% Q-over-Q to HKD 1.2 billion.

Arthur Chen
Arthur Chen
CFO at Futu Holdings

Operating margin 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% quarter-over-quarter to HKD 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 conclude our prepared remarks. We'd now like to open the call to questions. Operator, please go ahead.

Operator

Thank you. We will now begin the question and answer session. To ask a question, please press star one, one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Once again, it's star one, one for questions. Our first question comes from the line of Chi-Yao Huang from Morgan Stanley. Please ask your question, Chi-Yao.

Chiyao Huang
Chiyao Huang
Research Analyst at Morgan Stanley

[Foreign language]

Chiyao Huang
Chiyao Huang
Research Analyst at Morgan Stanley

[Foreign language] So, 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, you know, view or on the conversion rate from the app user to a paying clients. Is there any difference we are seeing in Japan right now compared to other international markets at a similar stage? So wonder if-

Chiyao Huang
Chiyao Huang
Research Analyst at Morgan Stanley

... management could give more color on that. Second question is regarding into 2Q, we're seeing pretty strong rebound in the China-related assets in Hong Kong and in Hong Kong in the U.S. as well. So I wonder what's the help we are seeing right now in terms of client trading activity and of some inflows in the second quarter so far we're seeing? Thank you.

Arthur Chen
Arthur Chen
CFO at Futu Holdings

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

Daniel Yuan
Daniel Yuan
Chief of Staff to the CEO and Head of Investor Relations at Futu Holdings

[Foreign language]

Daniel Yuan
Daniel Yuan
Chief of Staff to the CEO and Head of Investor Relations at Futu Holdings

Let me translate for myself. So for 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 Q-over-Q 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 platform. 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.

Daniel Yuan
Daniel Yuan
Chief of Staff to the CEO and Head of Investor Relations at Futu Holdings

There is still a significant gap in comparison to other overseas markets, whether it's current percentages or when they were first, when we first launched into that market. I think it's more, the reason, because of the account opening friction and, the product, and the lack of, comprehensive financial products. As Leaf mentioned in his opening remarks, we have a very rich, product pipeline coming up in Japan in the coming quarters. Thank you.

Arthur Chen
Arthur Chen
CFO at Futu Holdings

[Foreign language]

Arthur Chen
Arthur Chen
CFO at Futu Holdings

Number one is we definitely see a very strong momentum recovery in Hong Kong markets, which significantly helps our clients' asset inflows in Hong Kong, and the overall, in terms of trading volume, trading velocity, et cetera. As Leaf mentioned in the opening remarks, in the first quarter, in terms of the trading volume breakdowns, the US stock trading accounts for roughly, you know, over 75% of our total trading volume. And we do expect this ratio will become more healthy, given more contributions in Hong Kong stock in the second quarters.

Arthur Chen
Arthur Chen
CFO at Futu Holdings

Number two is, in the first quarter, we record a very strong net asset inflows, which roughly over HKD 35 billion, thanks to a very strong inflow from our existing markets in Hong Kong and in Singapore, et cetera. Also, incremental contributions from new markets such as Malaysia and Japan, et cetera. And we do believe such momentums remains in the second quarter to date. You know, this will significantly help in terms of the client assets and the trading, trading volume, et cetera... And thirdly, despite, you know, 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.

Arthur Chen
Arthur Chen
CFO at Futu Holdings

But we do think the overall momentum on absolute terms remain very strong, despite we expect there can be some Q-over-Q, you know, decrease due to a very high base in the first quarter. Thank you.

Operator

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 Katherine Lei from JPMorgan. Please ask your question, Katherine.

Katherine Lei
Katherine Lei
Equity Research Analyst at JPMorgan

Hi. Can you hear me clearly?

Arthur Chen
Arthur Chen
CFO at Futu Holdings

Yes.

Katherine Lei
Katherine Lei
Equity Research Analyst at JPMorgan

[Foreign language] I will translate for myself. First, it's about the Malaysia market. I will appreciate if management can give us some color on the Malaysia market. Like, I heard that clients are very active in trading, but is that one-off or event driven or is that a persisting trend? The second questions 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.

Arthur Chen
Arthur Chen
CFO at Futu Holdings

Thank you, Katherine. [Foreign language] in terms of unit economics in Malaysia, so far, on a quarter basis, we have witnessed a very healthy organic growth in terms of cash inflow than clients trading velocity and also the trading volume, etc. It seems that all these metrics in Malaysia is well above the average-

Arthur Chen
Arthur Chen
CFO at Futu Holdings

... situations of 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 you know closely monitoring. But having said that, we think you know the user behavior demonstrated so far is not just one-off because of some one-off events. Thank you.

Robin Xu
Robin Xu
Senior Vice President at Futu Holdings

[Foreign language]

Daniel Yuan
Daniel Yuan
Chief of Staff to the CEO and Head of Investor Relations at Futu Holdings

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 1/3 of our net new paying 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 just offer the best product in Malaysia. One-stop platform where you can invest in Malaysian equities, US equities, and we have free market data and information, which are all industry-leading.

Daniel Yuan
Daniel Yuan
Chief of Staff to the CEO and Head of Investor Relations at Futu Holdings

And last but not least, we have also accumulated a large number of users before our official brokerage business launch, and 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. And 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, et cetera. 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.

Daniel Yuan
Daniel Yuan
Chief of Staff to the CEO and Head of Investor Relations at Futu Holdings

In terms of our client profiles, most of our clients in Malaysia are male and have higher income. 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 assets than we expected, which will probably lead to a favorable payback period in Malaysia. Thank you.

Operator

Right. Thank you. Once again, to ask a question, please press star one one on your telephone. I am showing no further questions, and I'll turn the conference back to Mr. Daniel Yuan for closing comments.

Daniel Yuan
Daniel Yuan
Chief of Staff to the CEO and Head of Investor Relations at Futu Holdings

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.

Operator

Thank you. That concludes today's conference call. Thank you for participating. You may now disconnect.

Executives
    • Arthur Chen
      Arthur Chen
      CFO
    • Daniel Yuan
      Daniel Yuan
      Chief of Staff to the CEO and Head of Investor Relations
    • Leaf Li
      Leaf Li
      Chairman and CEO
    • Robin Xu
      Robin Xu
      Senior Vice President
Analysts
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