UP Fintech Q2 2024 Earnings Call Transcript

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Provided by Quartr
August 30, 2024

There are 5 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Uptintech Holdings Limited Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen only mode. There will be a presentation followed by a question and answer session. I must advise you that this conference is being recorded today, August 30, 2024.

Operator

I would now like to hand the conference over to your first speaker today, Mr. Aaron Li, the Head of Investor Relations. Thank you. Please go ahead.

Speaker 1

Thank you, Desmond. Hello, everyone, and thank you for joining us for the call today. UfFinTech Holding Limited's Q2 2024 earnings release was disputed earlier today and is available on our IR website at ir. Itigerapp.com as well as GlobeNewStar Services. On the call today from Upfintech are Mr.

Speaker 1

Wu Tianhua, Chairman and Chief Executive Officer Mr. Zheng Zheng, Chief Financial Officer Mr. Wang Lei, CEO of U. S. Tiger Securities and Mr.

Speaker 1

Kenny Zhao, our Financial Controller. Mr. Wu will give an overview of our business operations and discuss corporate highlights. Mr. Zeng will then discuss our financial results.

Speaker 1

They will both be available to answer your questions during the Q and A session that follows their remarks. Now let me cover the safe harbor. The statements we are about to make contain forward looking statements within the meaning of the U. S. Private Securities Litigation Reform Act of 1995.

Speaker 1

A number of factors could cause actual results to differ materially from those contained in any forward looking statements. For more information about factors that could cause actual results to materially differ from those in the forward looking statements, please refer to our Form 6 ks furnished today, August 30, 2024, and our Annual Report on Form 28 filed on April 22, 2024. We undertake no obligation to update any forward looking statement, except as required under applicable law. It is my pleasure to now introduce our Chairman and Chief Executive Officer, Mr. Wu.

Speaker 1

Mr. Wu will make remarks in Chinese, which will be followed by English translation. Mr. Wu, please go ahead with your remarks. Hello, everyone.

Speaker 1

Thank you for joining the Tiger Brokers' 2nd quarter 2024 earnings conference call. In the Q2, the U. S. Stock market continued to perform well and overall market activity further improved compared to the Q1. This led to a sequential increase in client trading volume across stock options and futures, with commission income reaching US34.1 million dollars up 22.7 percent quarter over quarter and 54.9% year over year, the 2nd highest quarterly commission revenue in our operating history.

Speaker 1

Our total revenue for the Q2 was US87.4 million dollars an all time high and reflected a quarter over quarter increase of 10.8% and a year over year increase of 32.4%. In bottom line, our GAAP and non GAAP net income attributable to UPFintech was US2.6 million dollars US5.2 million dollars respectively. The bottom line was negatively impacted by a loss provision of US13.2 million dollars relating to a case of Hong Kong stock pledging and withdrawal. Since 2023, our company has already stopped similar Hong Kong equity stock pledging and withdrawal in response to market condition and risk. And there is no such risk exposure among excessive users anymore.

Speaker 1

Excluding the impact of the loss provision, our pre tax profit for the quarter would be US19.4 million dollars reflecting a 13.9% increase quarter over quarter and 8.3% increase year over year. In the Q2, we added 48,900 newly funded accounts, representing a 69% sequential increase and a 68% increase year over year. Singapore and Southeast Asian regions were the primary contributors. In the first half of this year, we added a total of 77,700 new defendant accounts, and we are confident of delivering our annual guidance for acquiring at least 150,000 newly funded accounts in 2024. In terms of client assets, GAAP net asset inflow remained strong in the 2nd quarter, amounted to US1.7 billion dollars primarily from the Singapore and Hong Kong markets, fueled by a US3.6 billion dollars mark to market gain that total client assets by the end of the second quarter increased by 16% quarter over quarter and 121% year over year to US38.2 billion dollars an all time high.

Speaker 1

We are glad to see 7 consecutive quarterly growth in total client assets with new highs in the past 3 quarters. Notably, client assets from the Hong Kong market doubled quarter over quarter. Highlight our competency in attracting high quality users in markets like Singapore and Hong Kong through superior product experience and local knowledge also underscores the significant growth potential in the markets we currently focus on. In the Q2, we continued to enhance our product offerings by introducing a range of localized features. In August, we launched 2 key functionalities, Hong Kong stock options and short selling for Hong Kong stocks.

Speaker 1

Now we offer all major trading products for Hong Kong market, boosting our competitiveness and appeal to local users. Looking ahead, we're also glad to introduce the combo option strategy feature for Hong Kong stock options. Additionally, since our Hong Kong subsidiary officially uplifted its Type 1 license to include virtual asset dealing service for professional investors in January of this year. We received approved in June to expand this license to retail investors in Hong Kong. We offered 0 commission and no platform fee for both professional investors and Hong Kong retail clients to trade spot cryptocurrency on Tiger platform and supporting real time settlement of virtual asset transaction in U.

Speaker 1

S. Dollar. This provides user with a truly secure, convenient and cost effective global trading experience. We are also pleased to report that after introducing Tigerbolt's debit card and contract trading feature in Singapore market in Q4, we have received widespread positive feedback from existing users, which led to a significant increase in the number of newly funded accounts and cardholders with notable improvement in both user activity and stickiness. In addition to launching new products, we continue to refine the user experience of our existing features.

Speaker 1

For instance, our overnight trading for U. S. Stock has now expanded to support up to 9,500 stocks and ETFs, offering greater convenience for clients to trade U. S. Stocks and ETFs during local market hours and capture more market opportunities.

Speaker 1

Moreover, combo option strategy feature for U. S. Stock was upgraded in July to support 4 like options trade and execution based on net margin requirements, further enhancing trading strategy flexibility and margin efficiency. Our 2B business continues to perform well. In Investment Banking, we enrolled 12 U.

Speaker 1

S. And HaoGong IPOs in the Q2, including our PUGO and DDA. And we serve as the exclusive lead bank for Tangering Technologies and YY Group U. S. IPO.

Speaker 1

In our e store business, we added 22 new clients in the 2nd quarter, bringing the total number of e store clients served to 5 79 at the end of the Q2 of 2024, increased by 21% year over year. Now I would like to invite our CFO, John, to go over our financials.

Speaker 2

Thanks, Tianhua and Aaron. Let me go through our financial performance for the Q2. All numbers are in U. S. Dollar.

Speaker 2

Market was more active in the Q2 versus the Q1. Trading commission reached $34,100,000 increased 23% quarter over quarter and 55% year over year. Total revenue reached all time high to $87,400,000 increased 11% quarter over quarter and 32% year over year. Cash equities take rate was 6.7 bps this quarter, slightly increased from 6.3 bps last quarter. Raising commission revenue, about 65% comes from cash equities, 30% from options and the rest from futures and other products.

Speaker 2

Now on to cost. Interest expense was $13,600,000 increased by 30% from the same quarter of last year in light of the high interest rate environment. Execution and the clearing expense were $2,800,000 increased 38% from the same period of last year, primarily due to an increase in our trading volume and we keep improving our clearing efficiency. Cash equity clearing expense as a percentage of cash equity commission is about 2.1% this quarter, which remains one of the lowest in the industry. Employee compensation and benefit expense were $28,600,000 an increase of 20% year over year due to headcount increase to strengthen overseer growth and R and D.

Speaker 2

Occupancy, depreciation and amortization expense decreased 17 percent to $2,100,000 Communication and market data expense were $8,800,000 an increase of 14% year over year due to an increase in user base and IT related services. Marketing expense were $6,400,000 this quarter, increased 36% year over year as we saw market backdrop was more supportive for user acquisition and branding in the Q2. General and administrative expense were 20,200,000 dollars an increase of 3 45 percent year over year due to a $13,200,000,000 one time loss provision we incurred this quarter. Total operating costs were $69,000,000 an increase of 52% from the same quarter of last year. As a result, our GAAP net income and non GAAP net income for the 2nd quarter were $2,600,000 $5,200,000 respectively.

Speaker 2

If excluding the impact from the loss provision, our pretax profit for the same quarter would be $19,400,000 increased 14% quarter over quarter and 8% year over year. Now I have concluded our presentation. Operator, please open the line for Q and A. Thanks.

Operator

Thank you. Our first question comes from the line of Yu Fan from CICC. Please go ahead.

Speaker 3

I will quickly translate my question. This is Yo Yo San from CICC. I have 2 questions here. The first one is that we see the U. S.

Speaker 3

Stock market has been quite volatile in others and Q3 has already been underway for 2 months. Can you share some run rates over the past 2 months such as the number of new users, the trend of client asset and also the impact on the financial performance? And 7th, if we enter a rate cutting cycle, how much tighter adjust your business? And what kind of impact, say, like 25 basis points rate cut would have on the company's interest income?

Speaker 1

Okay. I'll translate for the first question. In terms of client assets, the China net asset inflow was still strong in the 1st 2 months of Q3, and the number of newly funded users also continued the rapid growth as we saw in the Q2. If we look at numbers, in July, we saw the highest single month revenue in our operating history. While August is not yet completed, trading volume in August so far is also very effective.

Speaker 1

September is a bit uncertain due to factors like U. S. Election and Fed interest rate decision. But overall, we are quite satisfied with how Q3 has been shaping up so far.

Speaker 2

So a recap by the Federal Reserve may negatively impact our interest income, but we also believe we could boost market activities leading to a more active trading volume and commission income. Therefore, we will adjust our strategy based on the actual pace of the rate cut and the market reactions, ensure we will find a balance among our commission interest related business and wealth management. So if the rate is 25 bps next month, our calculation based on our Q2 digit scale and interest income, such as the impact on total revenue for the Q4 will be about 1%.

Speaker 1

Operator, please move on to the next question. Thank you.

Operator

One moment for the next question. Our next question comes from Cindy Wang from China Renaissance. Please ask your question.

Speaker 4

Thanks management for giving me the chance to ask questions. So I have two questions. First one is, we see the profitability in this quarter many impacted by loss provisions. Could you tell us the reason why for the allowance for receivables from customers? And any following treatment with clients and the possibility of write back?

Speaker 4

What is the rate of such those provisions might happen again in the future? Second question is the Q2 new funded account grows very nicely. And can you give us the regional breakdown and any new customer acquisition strategy adopted in this quarter? Thank you.

Speaker 1

This impairment was linked to a Hong Kong stock pledging transaction business. To be cautious, the full amount was written off in the Q2. First of all, we're taking this very seriously and doing everything possible to recover the loss. We already signed a repayment agreement with the client and have the controlling shareholder as guarantor. However, to be cautious, the full amount was written off in the Q2.

Speaker 1

If we do receive repayment in the future, we will reverse this loss provision when the payment is made. Secondly, since last year, before this incident happened, we already stopped our Hong Kong Stock Pledge Withdrawal Business due to the market condition and risk. This particular transaction continued because it was still under contract. And finally, after the event, we had a thorough review of our risk procedures and existing stock pledging transaction. Now, there are no outstanding stock pledging and cash withdrawal transaction using Hong Kong stock as collaterals anymore.

Speaker 1

So in the Q2, about 65% of our new funding clients came from Singapore and Southeast Asia, around 15% from Hong Kong market and about 10% each from Australia, New Zealand region and the U. S. We are quite pleased with these results, which are the best we've seen in the last 10 quarters in terms of the number of quarterly new funded accounts. We believe there are a couple of reasons for this growth. First of all, the U.

Speaker 1

S. And Hong Kong stock market did well in the Q2. So we increased our market spending like on branding and advertisements by about 45% quarter over quarter, which helped boost new user numbers across different markets. And secondly, we also saw a big boost from new products we launched in Singapore in the 4th quarter, like the TigerVose debit card and contract trading features. The popularity of these functions among local clientele exceeded our expectations.

Speaker 1

By the end of August, we already have around 10,000 TigerVose cardholder, mostly new funded users from the Q2. Plus, in the past 3 months, contra trading feature alone also made meaningful contribution on Dara's commission income. So we are seeing significant growth in not only just user numbers, but also trading volume and commission income in Singapore quarter over quarter and year over year. Thank you.

Operator

Thank you for the questions. One moment for the next question. Our next question comes from Judy Zhang from Citi. Please go ahead.

Speaker 3

Let me translate my two questions. So the first question is regarding the development in Hong Kong market. How is the progress in the Hong Kong market development, including the traditional brokerage business and the company's virtual currency asset business that now supports retail and the PI trading? And what are the plans for deploying this business, such as pricing, customer acquisition strategy? And what is the expected results from the management?

Speaker 3

And second question is how is the company's wealth management business progressing? And what is the current scale and any updates on the product offerings? Thanks.

Speaker 2

So regards to the traditional brokerage business, we are quite pleased with our progress in Hong Kong. So in the Q2, average net asset inflow from our newly acquired clients was over US15000 dollars The Hong Kong market also showed the highest ARPU for the group with ARPU doubling compared to the Q4 of last year. Market was a little bit was more active in the Q2, so we capitalized on this backdrop by increasing local partnership and advertising. As a result, over 7,000 new funded users are onboarding in the Q2, which is about like 2.5 times the number from the previous quarter. And then in terms of client asset, we saw robust net asset inflow in the 2nd quarter and with the Hong Kong Index experienced 4 consecutive weeks of gains.

Speaker 2

Our asset under custody from Hong Kong market by the end of the 2nd quarter doubled sequentially. In terms of virtual asset business, our Type 1 license was up related back in June sorry, back in January to provide crypto trading for professional investors. In June, we got additional approval to offer spot crypto trading for retail investors. We launched a Crypto campaign for professional investors back in May. The campaign was very successful.

Speaker 2

By end of June, we already doubled our PI users on our platform. So far, we offer the most competitive pricing in Hong Kong in terms of Spark crypto trading. Our pricing is 0 commission plus your platform fee to trade Spark crypto on our platform. Thanks.

Operator

At this time, there are no further questions from the line. Allow me to hand the call back to management for closing.

Speaker 1

Operator, there is one more question, haven't been answered.

Operator

I beg your pardon. Please continue.

Speaker 1

In the Q2, our wealth management business saw strong growth, with client assets and user numbers increased by over 20% quarter over quarter and around 150% year over year. Platform penetration also improved. Now among the new funded clients in the Q2, more than 30 of them started using our TigerVault product. They also made some upgrades to the TigerVault in the Q2. Before the U.

Speaker 1

S. Stock market switched to T plus 1 settlement on May 28, TigerVault had already implemented T plus 0 functionality across all licenses, supporting U. S. Dollar, Hong Kong dollar and Singapore dollar. This allowed customers to instantly convert their balance into buying power and participate in faster market trading.

Speaker 1

The underlying asset of TigerVault also continued to perform well with average 7 day annualized yields during the 2nd quarter, exceeding 5.2% for U. S. Dollar market fund and 4.2% for Hong Kong dollar market fund and 30.6% for Singapore dollar market fund, providing investors with returns above the market average for cash management. So looking back over the past 2 years of the interest rate hike cycle, our wealth management business has seen significant growth in both product categories and AUM. In the Q2, we have moved our wealth management business to the home interface of our app, making it easier for users to access a variety of asset management products.

Speaker 1

This includes money market funds, stable income products, top performing funds, ETFs, UST bonds, FCNs and more. For users with different risk appetite diversified from pure equity investment. Thank you. Desmond, is there any other questions?

Operator

At this time, there are no more questions. Please continue.

Speaker 1

I would like to thank everyone for joining our call today. I'm now closing the call on behalf of the management team here at Tiger. We do appreciate you participating in today's call. If you have any further questions, please reach out to our Investor Relations team. This concludes the call, and thank you very much for your time.

Speaker 1

Bye bye.

Operator

Ladies and gentlemen, that concludes our conference for today. Thank you for your participation. You may now disconnect your lines.

Speaker 2

Thank you.

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Key Takeaways

  • Upfintech reported record Q2 revenue of US$87.4 million, up 10.8% QoQ and 32.4% YoY, driven by a 22.7% QoQ/54.9% YoY rise in commissions to US$34.1 million, although GAAP net income was held to US$2.6 million after a US$13.2 million loss provision.
  • The company added 48,900 newly funded accounts (up 69% QoQ, 68% YoY) mainly in Singapore and Southeast Asia, and total client assets reached an all-time high of US$38.2 billion (up 16% QoQ, 121% YoY), with Hong Kong assets doubling quarter-over-quarter.
  • Product enhancements included the launch of Hong Kong stock options, short selling, and combo option strategies, zero-commission spot crypto trading for retail and professional investors in Hong Kong, plus overnight trading expanded to 9,500 US stocks and ETFs.
  • Wealth management assets under management grew over 20% QoQ and 150% YoY, with the TigerVault money market fund delivering annualized yields above 5.2% (USD), 4.2% (HKD), and 3.6% (SGD), and the product was moved to the app’s home screen to boost client access.
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Earnings Conference Call
UP Fintech Q2 2024
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