Futu Q2 2024 Earnings Report

Futu EPS Results

• Actual EPS: $1.11
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Futu Revenue Results

• Actual Revenue: $400.73 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Futu Announcement Details

• Quarter: Q2 2024
• Date: 8/20/2024
• Time: N/A
• Conference Call Date: Tuesday, August 20, 2024
• Conference Call Time: 7:30AM ET

Futu (NASDAQ:FUTU) Holdings Ltd. is a technology-driven brokerage and wealth management company that provides online brokerage services, market data, and investment tools to retail and institutional clients. Headquartered in Hong Kong and listed on the NASDAQ under the ticker FUTU, the company operates digital trading platforms that combine order execution, real-time quotes, news, and research tools to serve active investors and wealth management customers.

The firm's product suite includes brokerage access to equities, exchange-traded funds and derivatives across major markets, margin financing, initial public offering (IPO) subscription services, wealth management products and discretionary investment solutions. Futu’s platforms emphasize a mobile-first experience with integrated market data, trading analytics and social features designed to help users make informed trading and investment decisions. The company also offers value-added services such as research reports, financial news, and premium data subscriptions.

Futu distributes its services through multiple consumer brands and apps tailored to different markets, including its Hong Kong- and China-facing platforms as well as the international moomoo app aimed at overseas investors. The company serves clients primarily in Mainland China and Hong Kong while expanding its presence among international retail investors. Founded and led by Leaf Hua Li, who serves in an executive leadership role, Futu has grown from a regional fintech start-up into a public company focused on leveraging technology to lower barriers to investing and to scale digital brokerage services across its target geographies.

Futu Q2 2024 Earnings Call Transcript

Key Takeaways

• In Q2, FUTU added 155,000 paying clients (168% YoY), crossing the 2,000,000 milestone and raised its full-year new client guidance to 550,000.
• Total client assets reached a record HKD579 billion (+24% YoY, +12% QoQ), driven by strong net inflows and an all-time high HKD441 billion in margin financing and securities lending balances.
• Q2 revenue rose 26% YoY to RMB3.1 billion, with net income up 8% YoY, while gross margin dipped to 81.6% and operating margin fell to 47.3% due to higher marketing and financing costs.
• FUTU launched cryptocurrency trading in Hong Kong and Singapore in August, noting early client activation but small trading volumes amid recent crypto market volatility.
• International expansion continues with planned rollouts in Japan (NISA savings account, mutual funds, U.S. margin trading), Malaysia (money market funds, local IPO subscriptions), and Canada (CashPlus product).

Presentation

[Operator]

Hello, ladies and gentlemen. Welcome to Futu Holdings Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there'll 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 this 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.

[Daniel Yuan, Chief of Staff to CEO and Head of Investor Relations at Futu Holdings]

Thanks, operator, and thank you for joining us today to discuss our second 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 risk and uncertainty. 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.

[Daniel Yuan, Chief of Staff to CEO and Head of Investor Relations at Futu Holdings]

Thank you all for joining our earnings call today. In the second quarter, we acquired 155,000 paying clients, representing 168% year-over-year growth. By the end of the quarter, we crossed the 2 million paying clients milestone, translating into 29% growth year-over-year and 8% growth quarter-over-quarter. Six months into 2024, we have achieved over 80% of our full year new paying client guidance. Given the strong year-to-date momentum, we would like to raise our guidance again to 550,000 new paying clients in 2024. New paying clients in Hong Kong and Singapore both recorded double digits sequential growth amid market rebound, collectively contributing to over one-third of paying client growth in the second quarter.

[Daniel Yuan, Chief of Staff to CEO and Head of Investor Relations at Futu Holdings]

In Japan, new paying clients grew by double-digit quarter-over-quarter as we continue to strengthen product offerings, iterate on marketing initiatives, and increase our brand awareness. Meanwhile, Malaysia maintained strong momentum and contributed the highest number of new paying clients among all markets two quarters in a row, despite sequential deceleration. New paying clients in Hong Kong and Singapore both recorded double-digit sequential growth amid market rebound, collectively contributing to over one-third of paying client growth in the second quarter.

[Daniel Yuan, Chief of Staff to CEO and Head of Investor Relations at Futu Holdings]

One major product update is our recent launch of cryptocurrency trading in Hong Kong and Singapore. Compared to some other markets we operate in, we believe that the penetration of crypto in Hong Kong and Singapore has much room for growth, given their supportive regulatory environment, rising awareness of virtual assets, and the emergence of more user-friendly virtual asset trading platforms. The adoption curve will not be linear and obviously highly subjective to market sentiments. But when we develop our product roadmap, we think less about short-term monetization than offering a broader portfolio of asset classes with low correlation to help our clients navigate market cycles, and thus drive higher client wallet share. In terms of our product roadmap for other international markets, in Japan, we are on track to launch NISA savings account, mutual funds, and U.S. margin trading in the coming months.

[Daniel Yuan, Chief of Staff to CEO and Head of Investor Relations at Futu Holdings]

In Malaysia, we recently rolled out Ringgit- and USD-denominated money market funds. To help our clients capitalize on the vibrant local IPO market in Malaysia, we also launched the Malaysian Stock IPO Subscription Services. In Canada, we just introduced Cash Plus product that enables clients to earn incentives on their idle cash.

[Daniel Yuan, Chief of Staff to CEO and Head of Investor Relations at Futu Holdings]

[Foreign language]

[Daniel Yuan, Chief of Staff to CEO and Head of Investor Relations at Futu Holdings]

Total client assets jumped 24% year-over-year and 12% quarter-over-quarter, to a record HKD 579 billion. The growth was fueled by the robust net asset inflow across markets and the market appreciation of our client's stock holdings. With net asset inflow recording rapid sequential growth, we have succeeded our full year 2023 numbers only six months into the year. In the second quarter, our clients continued to take on more leveraged positions amid uplift market sentiment. As a result, margin financing and securities lending balance climbed to an all-time high of HKD 44 billion.

[Daniel Yuan, Chief of Staff to CEO and Head of Investor Relations at Futu Holdings]

[Foreign language]

[Daniel Yuan, Chief of Staff to CEO and Head of Investor Relations at Futu Holdings]

Driven by robust net asset inflow into equities and money market funds, total client assets in Singapore grew by 19% quarter-over-quarter, marking the eighth consecutive quarter of double-digit growth. Average client assets in Malaysia recorded 45% sequential growth, while total client assets more than doubled. In Australia, average client assets realized sequential growth for three consecutive quarters.

[Daniel Yuan, Chief of Staff to CEO and Head of Investor Relations at Futu Holdings]

As Hong Kong stock trading sentiment continued to heat up within the second quarter, the main U.S. stock indices hit historical highs, total trading volume increased 69% year-over-year, 21% quarter-over-quarter, reaching HKD 1.62 trillion. This quarter, customers continued their trading enthusiasm for Hong Kong stock technology stocks and high dividend stocks, turnover rate also increased quarter-over-quarter amid the obvious shift in market sentiment. Therefore, Hong Kong stock trading volume grew 28% quarter-over-quarter, reaching HKD 358 billion. As the AI trading fever continued, coupled with the meme stock fever making a comeback, U.S. stock trading volume increased 19% quarter-over-quarter, reaching HKD 1.24 trillion. In the U.S. market, our advanced options trading functions, plus the user-friendly trading interface and rich investment education resources, enhanced our attractiveness among options traders. In the second quarter, the number of options traders in the U.S. grew approximately 60% year-over-year, options trading contract volume doubled year-over-year.

[Daniel Yuan, Chief of Staff to CEO and Head of Investor Relations at Futu Holdings]

As growing optimism continued into the second quarter for Hong Kong stocks and major U.S. indices notched an all-time high, total trading volume grew to HKD 1.62 trillion, up 69% year-over-year and 21% quarter-over-quarter. For Hong Kong stock trading, client interest persisted for technology and high dividend names. Trading velocity also rebounded sequentially, amid a palpable shift in market sentiment. As a result, Hong Kong stock trading volume increased by 28% sequentially to HKD 358 billion. Boosted by the continued AI mania and resurgence of meme stocks, U.S. stock trading volume grew by 19% quarter-over-quarter to HKD 1.24 trillion. In the U.S. market, advanced options trading tools, combined with user-friendly interface and extensive educational resources, boosted our appeal among options traders.

[Daniel Yuan, Chief of Staff to CEO and Head of Investor Relations at Futu Holdings]

In the second quarter, the number of options traders in the U.S. increased by around 60% year-over-year, while the number of options contracts traded more than doubled compared to the year-ago quarter.

[Daniel Yuan, Chief of Staff to CEO and Head of Investor Relations at Futu Holdings]

Wealth management business once again achieved significant growth this quarter. As customers seek diversified investments and continue to invest more funds into safer assets such as money market funds and US Treasury bonds, customer total assets grew 84% year-over-year, 25% quarter-over-quarter, reaching approximately HKD 80 billion. As of the end of the second quarter, wealth management assets accounted for 14% of total customer assets, with more than 25% of customers holding wealth management products.

[Daniel Yuan, Chief of Staff to CEO and Head of Investor Relations at Futu Holdings]

Wealth management recorded another quarter of exceptional growth. As our clients sought diversification and continued to park more funds in safer assets like money market funds and U.S. Treasury bills, total client assets grew by 84% year-over-year, and 25% quarter-over-quarter to around HKD 80 billion. As of quarter end, wealth management assets accounted for 14% of our total client assets, and over 25% of paying clients held wealth management positions.

[Daniel Yuan, Chief of Staff to CEO and Head of Investor Relations at Futu Holdings]

[Foreign language]

[Daniel Yuan, Chief of Staff to CEO and Head of Investor Relations at Futu Holdings]

We have 451 IPO distribution and IR clients, up 21% year-over-year. We underwrote seven of the 10 largest Hong Kong IPOs in the first half of 2024.

[Daniel Yuan, Chief of Staff to CEO and Head of Investor Relations at Futu Holdings]

[Foreign language]

[Daniel Yuan, Chief of Staff to CEO and Head of Investor Relations at Futu Holdings]

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

[Arthur Yu Chen, CFO at Futu Holdings]

Thank you, Lee and Daniel. Please allow me to walk you through our financial performance in the second quarter. All the numbers are in Hong Kong dollars, unless otherwise noted. Total revenue was HKD 3.1 billion, up 26% from HKD 2.5 billion in the second quarter of 2023. Brokerage commission and handling charge income was HKD 1.4 billion, up 45% year-over-year and 27% QoQ. The increase was mainly driven by a 69% year-over-year and a 21% QoQ growth in total trading volume. Given our per share pricing model for U.S. stock trading, the blended commission rate increased from 8.1 basis points to 8.5 basis points. As a result, brokerage income grew at a faster rate than trading volume QoQ.

[Arthur Yu Chen, CFO at Futu Holdings]

Interest income was HKD 1.6 billion, up 13% year-over-year and 18% QoQ. The year-over-year and QoQ increase was mainly driven by higher margin financing income due to an increase in daily average margin balance and a higher interest income from securities borrowing and the lending business. Other income was HKD 161 million, up 27% year-over-year and 3% QoQ. The year-over-year and the QoQ increase was both primarily attributable to higher fund distribution income, while the QoQ increase was partially offset by the decline in underwriting fee income. Our total costs were HKD 574 million, an increase of 53% from HKD 375 million in the second quarter of 2023.

[Arthur Yu Chen, CFO at Futu Holdings]

Brokerage commission and the handling charge expenses were HKD 87 million, up 58% year-over-year and up 45% QoQ. The expenses grew by a wider margin than income sequentially, mainly due to the capped fee scheme for US stock trading. Under the per share pricing model, we charge a maximum of 50 basis points of trading volume per order for US stock trading. So when clients trade a more low-priced meme stock, as was the case in the second quarter, there will be a mismatch between the growth rate of revenue and expenses. Interest expenses was HKD 378 million, up 71% year-over-year, and a 21% QoQ. The year-over-year and the QoQ increase was mainly driven by high interest expenses associated with our securities borrowing and the lending business.

[Arthur Yu Chen, CFO at Futu Holdings]

Processing and servicing cost was 109 million, up 11% year-over-year and 13% QoQ. The year-over-year increase was largely due to higher quality service fee, and the QoQ increase was mainly driven by higher market information and data fees. As a result, our total gross profit was 2.6 billion, an increase of 21% from 2.1 billion in the second quarter of 2023. Gross margin was 81.6%, as compared to 84.9% in the year ago quarter. Operating expenses were up 26% year-over-year, and 16% QoQ to 1.1 billion. R&D expenses was 374 million, up 3% year-over-year and 12% QoQ.

[Arthur Yu Chen, CFO at Futu Holdings]

The year-over-year and the Q-over-Q increase was mainly driven by an increase in R&D headcount to support our new markets. Selling and the marketing expenses was HKD 338 million, up 93% year-over-year and 16% Q-over-Q. The year-over-year increase was driven by the triple digit year-over-year growth in new paying clients, partially offset by lower client acquisition costs. The Q-over-Q increase was mainly due to the sequential increase in client acquisition costs. G&A expenses was HKD 362 million, up 16% year-over-year, and a 20% Q-over-Q. The year-over-year and the Q-over-Q increase was primarily due to increase in headcount for G&A personnel.

[Arthur Yu Chen, CFO at Futu Holdings]

As a result, income from operation increased by 18% year-over-year, and 24% QoQ to HKD 1.5 billion. Operating margin declined to 47.3% from 50.6% in the second quarter of 2023, mostly due to higher marketing expenses. Our net income increased by 8% year-over-year and a 17% QoQ to HKD 1.2 billion. Net income margin declined to 38.6% in the second quarter as compared to 41.1% in the same quarter last year. Our effective tax rate for the quarter was 15.2%. That concludes our prepared remarks. We'd now like to open the call to questions. Operator, please go ahead.

[Operator]

Thank you. To ask a question during the session, you will need to press star one one on your telephone. Please wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. We will now take our first question. Please stand by. And the first question comes from the line of Cindy Wang from China Renaissance. Please go ahead. Your line is now open.

[Cindy Wang, Analyst at China Renaissance]

[Foreign language]

[Cindy Wang, Analyst at China Renaissance]

... Thanks for taking my call. I have two questions, one question is related to crypto services. So recently you have launched the crypto services in Hong Kong and Singapore, could you provide some color on client feedback on crypto trading, and what's your client acquisition strategy? Second is, basically now is around two months for the sec third quarter, so can you give us some latest trend for the third quarter, including like trading volume, trading velocity, AUM, and the margin financing and securities lending balance. Thank you.

[Robin Li Xu, Senior Vice President at Futu Holdings]

Thank you, Cindy. [Foreign language]. For the second quarter today, we, what we witness is, still very robust client asset inflows, despite you know, there will be some negative impact implications from the mark-to-market loss, due to the challenges what we face, in Hong Kong markets. And then as, in terms of, you know, clients trading turnover, velocity, and also the trading volume etc, we both seen that, these indicators remain, very strong and have a sequential QoQ increase. In terms of the commission rate, given that, we got some ben, we got some benefit in second quarter, in lies that, you know, a lot more clients are trading these low value meme stock, which give us some positive uptick, in terms of the take rate, so such benefit will be become normalized, in the second, in the third quarter so far. Thank you very much.

[Operator]

Thank you。

[Operator]

OK. [Foreign language]

[Arthur Yu Chen, CFO at Futu Holdings]

So we launched cryptocurrency trading in Hong Kong and Singapore on August the first and August twelfth respectively, and we now offer a limited number of mainstream trading pairs. So far we have a number of clients that have activated their cryptocurrency trading accounts, but because we offered the product not long ago, and because recently the cryptocurrency market experienced very significant pullback and fluctuation, and so clients trading volume of cryptocurrency and client assets are both pretty small in comparison to the scale of the whole business. Right now our focus is to continue to enhance our product capabilities and continue to provide investor education and operation to further enhance our value proposition as a one stop asset allocation platform. Thank you.

[Operator]

Thank you. We will now take our next question. And the next question comes from the line of Qiao Wang from MS. Please go ahead, your line is now open.

[Qiao Wang, Analyst at Daiwa Capital Markets]

Okay, thank you to the management for giving me the opportunity to ask questions. I am Qiao Wang from Morgan Stanley. I have two questions to ask. The first one is about client net inflow. Very happy to see the growth in clients' total assets, both quarter-over-quarter and year-over-year are very healthy. Regarding this, please management give us a bit of a breakdown, that is, how much of this is from inflow, from mark-to-market. Believe mark-to-market is also a positive contribution. Then from the perspective of regional distribution, what roughly is the proportion of this net inflow from each region's allocation? This is the first question. The second question is to ask about Japan's progress in client acquisition. Want to ask if the trend in the second quarter and second quarter has accelerated. Then in the third quarter, the specific trend of client acquisition in Japan that we see so far is what? Then if there is acceleration, what are the main drivers here? Then on the other hand also want to ask, in Japan the state of this kind of cash assets currently is what kind of state. Then after clients' inflow, the characteristics of their entire asset allocation. This is my second question.

[Qiao Wang, Analyst at Daiwa Capital Markets]

[Foreign language]. So I got two questions. One is on the, could management provide more color on the QoQ increase in client assets, how much is the inflow and how much is mark-to-market driven? And in particular, where the inflows are coming from in terms of the geographic mix in 2Q. And second question is on the Japanese client acquisition, do we see any acceleration trend in the second quarter compared to the first quarter? And how is the trend in 3Q going so far right now? And also, what's currently the per client assets in Japan and where the clients are putting their money at in Japan? Thank you.

[Daniel Yuan, Chief of Staff to CEO and Head of Investor Relations at Futu Holdings]

you, Qiao. I will take your first question, and I will leave the second question to my colleague Daniel [Foreign language] in terms of the, you know, benefit from our total client assets increase in the second quarter, our total client assets increased by 12% QoQ, and to break this down, majority of the contribution actually comes from the clients, as an inflows, in terms of the top of their accounts on cash or stock transfer, which accounts for roughly, you know, to high, high single digit, contribution, and the remaining 2-3% belongs to the mark-to-market, positive benefit. Hong Kong and Singapore both these are two key markets in terms of the contribution of new asset inflows, which roughly accounts for 80% of our total net asset inflow. Thank you very much. [Foreign language] Overall, in the second quarter, we saw very robust, net new paying clients in Japan actually recorded very decent quarter-over-quarter growth. In terms of the absolute number of paying clients contributed, so Japan or Malaysia are in the first tier.

[Daniel Yuan, Chief of Staff to CEO and Head of Investor Relations at Futu Holdings]

We were very happy with what we saw in Japan in the second quarter. At the quarter end, we had close to 800,000 users, which we think is also a very healthy growth. Previously we gave the guidance of having 1-1.5 million users in Japan by year-end, and we're still very confident about that guidance. In terms of driver for new paying client growth, two things. First of all, it's just to continue to roll out new products. In comparison to some of the mainstream players in Japan, we still lack a couple of very key financial products. As Leaf mentioned in his opening remarks, we have a plan to offer those products in the next couple of months. Secondly, brand building is also important, as we've realized and a lot of investors are aware right now, Japan users usually take a bit more time to trust a brand, especially a brand from overseas. That's why we'll continue to invest in our brand, and that's also why we did a power lounge and had a brand ambassador in the second quarter. These all contributed to a higher brand equity, and we'll continue to invest in brand building. In terms of average client assets, right now, it's a couple thousand US dollars, and mostly clients still allocated into US stocks, although the percentage of assets in Japan stocks and the percentage of trading volume from Japan stocks have been increasing, and we believe that as we continue to enhance our Japan stock...

[Daniel Yuan, Chief of Staff to CEO and Head of Investor Relations at Futu Holdings]

Product offerings, these percentage contribution will continue to go up, closer to the market level. Thank you! Thank you.

[Operator]

Thank you. We will now take our next question. Please stand by. And the next question comes from the line of You Fan from CICC. Please go ahead, your line is now open.

[You Fan, Analyst at CICC]

[Foreign language] I've got two questions here.

[You Fan, Analyst at CICC]

The first question was our plan for new product offerings, any product pipeline, especially in new markets like Japan and Malaysia. And the second question was our progress of the share repurchase program.

[Daniel Yuan, Chief of Staff to CEO and Head of Investor Relations at Futu Holdings]

[Foreign language]. In terms of the product pipeline, for Japan, as we've mentioned earlier, a couple of very important financial products for us and also what we intend to roll out in the next couple of months include, number one, in the savings account, and number two, mutual funds, and thirdly, US margin financing.

[Daniel Yuan, Chief of Staff to CEO and Head of Investor Relations at Futu Holdings]

And from Malaysia, I think we've kept a very nice pace of new product rollout. And in the third quarter, quarter to date, we've actually rolled out Malaysian stock IPO subscription services and also the Cash Plus product, which is a money market product. And from our experience, when the IPO market is very hot, usually IPO subscription service can be a good contributor of new client growth, and during the high rate environment, money market products can help increase client assets. And in terms of future product pipeline in Malaysia, we plan to roll out this quarter the stock transfer from Malaysian stocks, so that we can attract existing clients and other brokers in Malaysia. Thank you.

[Daniel Yuan, Chief of Staff to CEO and Head of Investor Relations at Futu Holdings]

[Foreign language] Our existing share repurchase program actually will cover, you know, 2024 and also 2025.

[Daniel Yuan, Chief of Staff to CEO and Head of Investor Relations at Futu Holdings]

So far we have not exercised this program yet. We will keep you and also other analysts and investors, our shareholders posted, if we, you know, exercise any of them. Thank you.

[Daniel Yuan, Chief of Staff to CEO and Head of Investor Relations at Futu Holdings]

Okay, thank you very much. Thanks.

[Operator]

Thank you. We will now take our next question. Please stand by. And the next question comes from the line of Zoe Zheng from Jefferies. Please go ahead, your line is now open.

[Zoey Zong, Analyst at Jefferies]

Thanks, management, for taking my question. I have two questions. First, what's the business model of your crypto service? Then the second question is because we saw the second quarter's interest expense increased 21% quarter-over-quarter, then want to ask the reason for this and the subsequent trend. Ah, thanks, I'll translate it myself. Uh, thanks management for taking my question. I have two questions. Uh, first, what's the business model of your crypto service?

[Zoey Zong, Analyst at Jefferies]

Second, we have seen that interest expenses increased by 21% sequentially in Q2, wondering what's the reason behind and how should we think about the trend going forward? Thank you.

[Robin Li Xu, Senior Vice President at Futu Holdings]

[Foreign language]

[Robin Li Xu, Senior Vice President at Futu Holdings]

[Foreign language]. In terms of the in-interest expenses increase in the second quarter, which I think is mainly associated with our clients, you know, margin financing and the stock borrowing in particular, in terms of stock borrowing, the pricing, the implied interest rate, is more rely on the market driven demand and the supply situation, which is very hard to give a precise estimation and very difficult to project. If just assume the status as quote, if our penetration rate of our retail clients to continue, enhance, in the stock borrowing universe, I think the expenses associated with such activities, revenue on the top line will both further increase. Thank you.

[Robin Li Xu, Senior Vice President at Futu Holdings]

[Foreign language]. For cryptocurrency trading, since we now only offer the trading services.

[Robin Li Xu, Senior Vice President at Futu Holdings]

The business model is pretty straightforward, just we charge a commission. And when we design our pricing scheme, we want to balance our market competitiveness and monetization potential. So right now in Hong Kong and Singapore, we both work with an upstream provider to offer cryptocurrency trading. And under our current pricing model, take into consideration the upstream costs, we still enjoy pretty good gross profit margin. So the net take rate of cryptocurrency trading is higher than the net take rate for Hong Kong and U.S. stock trading. Thank you.

[Zoey Zong, Analyst at Jefferies]

Thank you。

[Operator]

Thank you! We will now take our next question. Please stand by. The next question comes from the line of Emma Xu from Bank of America Securities. Please go ahead. Your line is now open.

[Emma Xu, Analyst at Bank of America Securities]

[Foreign language].So I have two questions.

[Emma Xu, Analyst at Bank of America Securities]

The first question is about the client acquisition. You just raised your full year new paying client targets to five hundred and fifty thousand, which means you need to acquire around one hundred and eight thousand new paying client per quarter, and usually your client acquisition is seasonally low in fourth quarter. That implies your first quarter client acquisition is still quite strong, so could you tell us which markets are driving your client growth in third quarter, and the second question is that given the rising expectations of rate cuts and then the recent wild volatilities in the AI stocks, so do you see the changes in client asset allocation, say between the stocks, the bonds and the options, et cetera?

[Emma Xu, Analyst at Bank of America Securities]

In terms of the allocation within the stock, say from the AI growth stock to value stock, and how will these changing behaviors impact your take rate? And correspondingly, given the rising expectation of rate cuts, how will it impact your interest income? I know it could probably have limited impact on your interest income this year, but what will be, say, that 25 basis point rate cuts impact on your interest income next year? Thank you.

[Robin Li Xu, Senior Vice President at Futu Holdings]

[Foreign language]. In terms of the guidance for new client acquisition, as Steve mentioned that in the opening remark, we have already revised our targets to 550,000 new paying clients for the whole year.

[Robin Li Xu, Senior Vice President at Futu Holdings]

In the second quarter, major contributions for the new clients acquired is number one, the Hong Kong and Singapore, which contribute over one third of our new paying clients acquired in the second quarter. Combined Japan and Malaysia, which accounts for roughly, you know, 40% for the whole pie. Based on the quarter to date situations, we are still very confident we can achieve the guidance we mentioned before, despite there can be some uncertainties coming arising the US election in the fourth quarters. We do expect, you know, contribution breakdown from these markets should be similar to what we have witnessed in the first half of this year.

[Robin Li Xu, Senior Vice President at Futu Holdings]

Of course, for the second question, of course, we got some negative implications, you know, from the rate cut. We have some preliminary sensitivity estimations every 25 basis point rate cut, our pre-tax profit, operating profit, will be impacted by HKD 5 million-HKD 8 million. If we did not account any potential positive implications from the market trading volume increase because of the rate hike, and also the benefit from the new client acquisitions, you know, for these implications. So far, we have not witnessed a very significant client asset allocation changes arising from your observations.

[Robin Li Xu, Senior Vice President at Futu Holdings]

But in the wealth management universe, we do witness there will be more asset allocations by our clients on the fixed income products, you know, including the treasuries and also fixed, short-duration fixed income products, et cetera. Thank you.

[Emma Xu, Analyst at Bank of America Securities]

Thank you, very helpful.

[Operator]

Thank you. We will now take our next question. Please stand by, and the next question comes from the line of Charles Zhou from UBS. Please go ahead. Your line is now open.

[Charles Zhou, Analyst at UBS]

[Foreign language]. IPO financing income。 So first of all, congratulations to the management team. I think it's a very strong set of results and also above the consensus. So my question is regarding the client acquisition costs, because I think this is very well managed, so do we have any updates for the 2024 for the full year guidance?

[Charles Zhou, Analyst at UBS]

If you don't have any new guidance or any updates, we believe there you know there's also a decent huge upside from here as well. Could you please also share your marketing and also client acquisition strategy in several of the key markets in the second half? My second question is related to the interest income. Our understanding there are three major components: idle cash interest income, margin financing and stock lending interest income as well as the IPO financing income. Could you please just help us to split the interest income of you know from these three components for the second quarter? Thank you.

[Robin Li Xu, Senior Vice President at Futu Holdings]

[Foreign language]. For your two questions, number one is about the CAC guidance, any update?

[Robin Li Xu, Senior Vice President at Futu Holdings]

You know, in the second quarter, our CAC is around the, you know, HKD 2,200, which have 30% QoQ increase, versus Q1, which has a very relatively a very low base because of the significant contribution of new clients acquired, in Malaysia. We think the situation will just, you know, be normalized in the second quarter and, for the third quarter for today, I think, you know, in terms of CAC, we still maintain, it's, it's in a relatively low levels, which is, below our, you know, guidance range HKD 2,500-HKD 3,000, for the whole year. On relative speaking, I would become more constructive, in terms of this CAC guidance.

[Robin Li Xu, Senior Vice President at Futu Holdings]

Based on the current runway, I think it will be very likely locate in the low end of our range or even lower than this range for the whole year. Then the breakdown of the interest income, because of the market challenges in Hong Kong and in the U.S., the interest income deriving from the IPO financing both in Hong Kong and in the US is not material. And clients idle cash and also the margin financing almost contribute equally in terms of the interest income breakdown. Despite my feeling is, you know, the interest income from idle cash will slightly higher than the second part. Thank you very much.

[Charles Zhou, Analyst at UBS]

Okay, that's very helpful. Thank you.

[Operator]

Thank you. We will now take our next question. Please stand by... And the next question comes from the line of Peter Zhang from J.P. Morgan. Please go ahead. Your line is now open.

[Peter Zhang, Analyst at J.P. Morgan]

Thank you very much to management for giving me the opportunity to ask questions. I am Peter from J.P. Morgan. I have two questions. My first question is I want management to introduce to us again the latest progress of the Malaysia business, for example, customers' in this quarter new inflow situation, average assets per household, customer profile, then customers' trading turnover rate, as well as Malaysia business future outlook. Then my second question is about Airstar Bank. Futu invested in Tianxin Bank in June. I want to ask about the reasons behind this investment, as well as future strategies and business outlook.

[Peter Zhang, Analyst at J.P. Morgan]

This is Peter from J.P. Morgan. I have two questions. My first question is on Malaysia business. I wish management could give us more details on the progress of the Malaysia business. For example, the client net asset inflow, average client assets, client profile and client trading turnover. And what's the outlook of the Malaysia business? And my second question is about the Airstar Bank. I understand how Futu invest 40% shares into the Airstar Bank in June. We wish to understand what the rationale behind this investment and going forward, what's Futu's strategy to cooperating with this virtual bank in Hong Kong? Thank you.

[Robin Li Xu, Senior Vice President at Futu Holdings]

[Foreign language]. I think the key, we think the key motivations or the, the reason for we to consider to do this investment, number one is we continue got a lot of requests or, you know, suggestions from our users and the clients, in the past several years in Hong Kong, given more and more Hong Kong clients, met a lot of pain points in terms of the fund transfer, to the brokerage accounts.

[Robin Li Xu, Senior Vice President at Futu Holdings]

Secondly, of course, we do think, you know, in terms of our future strategy directions, there will be a lot of synergy and also same scenarios between the brokerage business, wealth management business in Futu and also the retail banking business and also, you know, high net worth, you know, wealth management business normally provided by the bank. So, the deal was just completed in the second quarter. We strive very hard and work very closely with the local management of Airstar Bank, alongside with, you know, Xiaomi and other shareholders of Airstar Bank to align our long-term strategy.

[Robin Li Xu, Senior Vice President at Futu Holdings]

Having said that, I think the near term focus will be more on the product itself, especially, you know, how to, you know, contribute our R&D capabilities and technology capabilities, to further foster and enhance the infrastructure, of the commercial, of Airstar Bank's products. Thank you.

[Peter Zhang, Analyst at J.P. Morgan]

[Foreign language]

[Anshul Rai, Company Representative at Futu Holdings]

[Foreign language]

[Anshul Rai, Company Representative at Futu Holdings]

So in terms of our...

[Anshul Rai, Company Representative at Futu Holdings]

Client profiles, given our value proposition as a one-stop trading platform for Malaysian and US stocks. So far, the clients we have attracted have some level of investment experience, and most of them are young Asian males and have a higher income level than the country's average number. And also we've seen that the trading turnover of our Malaysian clients are meaningfully higher than the group average. So given the ARPU and CAC numbers we have seen in the second quarter, we think the payback period in Malaysia is better than when we first launched in Singapore. As at the end of the second quarter across our different cohorts in Malaysia, net asset inflow, average client assets, all were trending up month over month, and average client assets was actually up 45% QoQ. And as our average client assets in Malaysia continued to increase, we believe the unit economics will continue to improve. So, in terms of the second quarter client acquisition and the third quarter quarter-to-date trend, so the second quarter new paying clients was down a bit sequentially, mostly because of a high base in the first quarter.

[Anshul Rai, Company Representative at Futu Holdings]

That's when we were able to convert a large number of our existing users into paying clients. But apart from that, the second quarter growth was very steady QoQ, and we believe the strong momentum is partially due to the spillover of our brand equity accumulated in Singapore, and also because there are leading product capabilities as a one stop platform for Malaysian U.S. stocks. And also the strong market sentiment in the second quarter also helped with client acquisition. And the second quarter, we launched a Malaysian stock IPO subscription and also automatic investment schemes for US stocks and fractional shares for U.S. stocks. And for the third quarter quarter to date, we launched money market funds and also stock transfer from Malaysian stocks. And the third quarter, we expect a steady quarter-over-quarter new paying clients growth in Malaysia. Thank you.

[Operator]

Thank you. We will now take our next question. Please stand by. And the next question comes from the line of Hu Shen from CLSA. Please go ahead, your line is now open.

[Hu Shen, Analyst at CLSA]

[Foreign language] What is the share of NVIDIA in the total US trading volume?

[Hu Shen, Analyst at CLSA]

How did this single factor influence the commission rate in second quarter? How big was the influence from mid-cap stock trading? What is a good indicator to track the change in U.S. stock trading commission rate change? And what is the fee rate in the distribution of funds and the money market funds? And what could be a good timing for considering issuing dividends? Thanks.

[Anshul Rai, Company Representative at Futu Holdings]

[Foreign language]

[Robin Li Xu, Senior Vice President at Futu Holdings]

[Foreign language] In terms of first questions, NVIDIA, you know, roughly accounts for our, you know, 20%-30% of our clients U.S. stock trading volumes, in the second quarters.

[Robin Li Xu, Senior Vice President at Futu Holdings]

For your second questions, so far, we do not have any, you know, concrete dividend policy. The key reason is we think still there were huge, you know, growth potential areas which we can further deploy our capitals, and we are very confident these, you know, investment will generate more high return, which is higher than our cost of the capital, and in terms of the economics of these fund distribution or treasury trading, etc., which I think to some extent related to some confidentiality, you know, commercial arrangement, but the thing I can share is the arrangement is very typical, similar to the industry, you know, distribution model. Thank you.

[Operator]

[Foreign language]

[Operator]

Thank you. Due to time constraints, I would now hand back to Daniel Yuan for any closing remarks. Please go ahead.

[Daniel Yuan, Chief of Staff to 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]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.

Participants

Executives

• Robin Li Xu, Senior Vice President
• Anshul Rai, Company Representative
• Daniel Yuan, Chief of Staff to CEO and Head of Investor Relations
• Arthur Yu Chen, CFO

Analysts

• Emma Xu, Analyst at Bank of America Securities
• Peter Zhang, Analyst at J.P. Morgan
• Cindy Wang, Analyst at China Renaissance
• You Fan, Analyst at CICC
• Hu Shen, Analyst at CLSA
• Charles Zhou, Analyst at UBS
• Qiao Wang, Analyst at Daiwa Capital Markets
• Translator
• Zoey Zong, Analyst at Jefferies
• Analyst