Futu Q1 2025 Earnings Report

Futu EPS Results

• Actual EPS: $1.96
• Consensus EPS: $1.95
• Beat/Miss: Beat by +$0.01
• One Year Ago EPS: N/A

Futu Revenue Results

• Actual Revenue: $603.43 million
• Expected Revenue: $594.86 million
• Beat/Miss: Beat by +$8.57 million
• YoY Revenue Growth: N/A

Futu Announcement Details

• Quarter: Q1 2025
• Date: 5/29/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, May 29, 2025
• Conference Call Time: 7:30AM ET

Futu (NASDAQ:FUTU) provides digitalized securities brokerage and wealth management product distribution service in Hong Kong and internationally. It offers online financial services, including securities and derivative trades brokerage, margin financing and fund distribution services through its Futubull and Moomoo digital platforms. The company also provides financial information and online community services; online wealth management services under the Money Plus brand name through its Futubull and moomoo platforms, which provides its client access to mutual funds, private funds, bonds, structured products, and other wealth management products; market data and information services; and NiuNiu Community, which serves as an open forum for users and clients to share insights, ask questions, and exchange ideas. Futu Holdings Limited was founded in 2007 and is headquartered in Sheung Wan, Hong Kong.

Futu Q1 2025 Earnings Call Transcript

Key Takeaways

• In Q1 2025, Futu added approximately 262,000 net new funded accounts, up 48% year-over-year, bringing total funded accounts to 2.7 million and keeping the company on track to meet its 800,000 new‐account guidance.
• Revenue reached HKD 4.7 billion (up 81% y-o-y) with net income of HKD 2.1 billion (up 107% y-o-y), driving operating and net margins to 57.2% and 45.6%, respectively.
• Total client assets climbed to HKD 830 billion (up 60% y-o-y, 12% q-o-q) on record net asset inflows, powered by a Hong Kong equities rally and robust demand in Singapore and other markets.
• Launched Futu BOLT AI, a smart investment assistant with ~90% satisfaction and superior accuracy versus general models, and plans to roll it out to international markets in Q2 as part of its digital innovation push.
• Advanced its product and market expansion with a new desktop version of Futu Go, US fractional-share and options trading in Japan, enhanced crypto trading in Hong Kong and the US, and is progressing its VATP license application in Hong Kong.

Presentation

[Operator]

Hello, ladies and gentlemen. Welcome to Futus Holdings First Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in listen only mode. After management's prepared remarks, there will be a question and answer session. Today's conference call is being recorded.

[Operator]

If you have any objections, you may disconnect at this time. I would now like to turn the conference over to your host for today's conference call, Daniel Yuan, Chief of Staff Ops to CEO, Head of Strategy and IR at Futu. Please go ahead.

[Daniel Yuan, Chief of Staff to CEO, Head - Strategy & IR at Futu]

Thanks, operator, and thank you for joining us today to discuss our first quarter twenty twenty five earnings results. Joining me on the call today are Mr. Li 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 involve inherent risks and uncertainties.

[Daniel Yuan, Chief of Staff to CEO, Head - Strategy & IR at Futu]

We caution you that a number of important factors could cause actual results to differ materially from those contained in 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. Thank you all for joining our earnings call today.

[Daniel Yuan, Chief of Staff to CEO, Head - Strategy & IR at Futu]

We kicked off 2025 with strong momentum, adding approximately 262,000 new funded accounts in the first quarter, up 48% year over year and 22% quarter over quarter. By quarter end, total funded accounts stood at 2,700,000, a 42% increase from a year ago and an 11% rise sequentially. With a third of our annual target already in the bag, we are tracking well against our guidance of 800,000 net new funded accounts in 2025. For the second quarter in a row, Hong Kong market led in new funded accounts amid a risk on mood for China equities. An active IPO calendar also helped acquire new clients while reactivating previously dormant ones.

[Daniel Yuan, Chief of Staff to CEO, Head - Strategy & IR at Futu]

We believe that brokers with strong brand equity, seamless user experience, and superior execution capabilities are best positioned to convert market tailwinds into sustained growth. Funded account growth in The US picked up pace as we enhance the platform experience for active traders. Our take charge of your trading campaign in New York City also boosted brand visibility and deepened engagement with retail investors. Malaysia delivered the fastest sequential growth in new funded accounts across all seven markets, fueled by effective marketing campaign and our seamless Malaysian IPO subscription experience. Looking ahead, we still see significant runway for market share expansion and remain committed to product localization and brand investment.

[Daniel Yuan, Chief of Staff to CEO, Head - Strategy & IR at Futu]

In Japan, new funded accounts saw strong sequential growth and reached a historic high, reaffirming our position as the preferred platform for U. S. Equity trading among Japanese retail investors. Among the products we shipped in the first quarter, the highlight was Futu BOL AI, a smart investment assistant trained on Futu's proprietary financial data and investor community insights. This integrated solution combines AI powered search, q and a, and customer support, offering context aware responses tailored to retail investors.

[Daniel Yuan, Chief of Staff to CEO, Head - Strategy & IR at Futu]

Since launch, it has received overwhelmingly positive feedback with a satisfaction rate of around 90% and has demonstrated significantly higher accuracy and professionalism in answering investment related questions than general purpose models. We plan to roll out similar AI offerings to other international markets in the second quarter to empower investors globally. In the first quarter, we also launched a brand new desktop version of Futu Go built on a new framework compatible with Windows, Mac OS, and Linux. This next generation version features intuitive drag and drop tools for building quantitative strategies and enumerates multi like option strategies that reflect clients' views on the security, bringing invest bringing institutional great functionalities in a more user friendly manner. In Japan, we introduced US fractional shares trading in February to enhance accessibility, followed by the April launch of US options trading to help clients better capture market movements.

[Daniel Yuan, Chief of Staff to CEO, Head - Strategy & IR at Futu]

Total client assets reached HKD 830,000,000,000, marking a 60% increase year over year and a 12% increase quarter over quarter. The growth was primarily driven by record net asset inflow. The rally of Hong Kong equities led by large Captech names drove significant asset inflow. Total client assets in Singapore rose 11% sequentially, marking the eleventh consecutive quarter of double digit growth, thanks to robust inflow into US equities and wealth management products. In Canada and Australia, average client assets increased for the fifth consecutive quarter, underscoring improving client quality and growing brand trust.

[Daniel Yuan, Chief of Staff to CEO, Head - Strategy & IR at Futu]

Margin financing and securities lending balance closed the quarter at HKD50.3 billion, largely stable from the prior quarter as clients delivered in March amid market pullback. Total trading volume reached HKD 3,220,000,000,000.00 in the first quarter, up a 40% year over year and 11% quarter over quarter. US equity trading rose 8% sequentially to HKD 2,250,000,000,000.00, supported by bottom fishing of semiconductor and technology stocks. Trading volume in Hong Kong equities advanced 21% quarter over quarter to HKD $916,000,000,000, lifted by a resurgence in investor sentiment amid the deep sea induced rally. In The U.

[Daniel Yuan, Chief of Staff to CEO, Head - Strategy & IR at Futu]

S, we saw double digit sequential growth in both the number of options traders and the number of options contracts traded, with the latter reaching its historic high. Wealth management client assets reached a 139,200,000,000.0 as of quarter end, up a 18% year over year and 26% quarter over quarter. 29 of funded accounts held wealth management products, a further sequential increase. A big part of the inflow was driven by money market funds as clients flocked to safe haven assets amid market volatility. At the same time, we saw rising allocations into bond funds and strong demand for structured notes, especially in Singapore.

[Daniel Yuan, Chief of Staff to CEO, Head - Strategy & IR at Futu]

In Hong Kong and Singapore, we expanded our structured product lineup with FX linked nodes. In Malaysia, we onboarded equity funds, while in Japan, we've rolled out US dollar denominated money market funds to better serve clients' cash management needs. As of quarter end, we had four ninety eight IPO distribution and IR clients, up 16% year over year. In the first quarter, we participated in several landmark Hong Kong listings as joint lead manager, including those of Box Group and Gumin Holdings, where we acted as the exclusive online broker for IPO distribution. Notably, in the highly anticipated MiXue Group IPO, 70,000 clients contributed to over 1,000,000,000,000 Hong Kong dollars in subscription amount, putting us first among all brokers in both total subscription amount and number of subscribers.

[Daniel Yuan, Chief of Staff to CEO, Head - Strategy & IR at Futu]

We observed that these high profile IPOs typically lead to higher client engagement, stock trading volume, and asset inflow.

[Daniel Yuan, Chief of Staff to CEO, Head - Strategy & IR at Futu]

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

[Arthur Yu Chen, Chief Financial Officer at Futu]

Thank you, Lipa 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 4,700,000,000.0, up 81% from 2,600,000,000.0 in the first quarter of twenty twenty four.

[Arthur Yu Chen, Chief Financial Officer at Futu]

Brokerage commission and handling charge income was 2,300,000,000.0, an increase of 113% year over year and 12% Q over Q. The year over year increase was mainly driven by higher trading volume partially offset by the decline in blended commission rate. The year over year decline in blended commission rate was mainly driven by changes in product mix and a higher average order size for Hong Kong stock trading. A Q over Q increase was mainly driven by the sequential growth in trading volume. Interest income was 2,100,000,000.0, a 53% year over year and 2% Q over Q.

[Arthur Yu Chen, Chief Financial Officer at Futu]

The year over year increase was driven by high interest income from security borrowing and the lending business, margin financing and the bank deposits. The Q over Q increase was driven by higher margin financing income as well as higher interest income from security borrowing and the lending business partially offset by lower interest income from bank deposits due to higher interest due to lower interest rate on clients cash deposits. Other income was $314,000,000 up 101% year over year and down 11% Q over Q. The year over year increase was primarily attributable to higher fund distribution service income and currency exchange income. Our total cost was $749,000,000, an increase of 59% from $470,000,000 in the first quarter of twenty twenty four.

[Arthur Yu Chen, Chief Financial Officer at Futu]

Brokerage commission and handling charge expenses was 144,000,000, up 138% year over year and the 28% Q over Q. Both the year over year and the Q over Q increase was roughly in line with the movement of our brokerage commission and handling charge income. Interest expenses were $469,000,000 up 50% year over year and down 9% Q over Q. The year over year increase was driven by higher interest expenses associated with our secreted borrowing and the lending business and a higher margin financing interest expenses. The Q over Q decrease was mainly due to lower margin financing interest expenses and the lower interest expenses associated with our security borrowing and the lending business.

[Arthur Yu Chen, Chief Financial Officer at Futu]

Processing and the servicing costs were 136,000,000, up 44% and down 10% Q over Q. The year over year increase was largely due to higher market information data fee or enhanced market data coverage and the Q over Q decline was mainly driven by lower system usage fee as well as lower market information and the data fees. As a result, our total gross profit was 3,900,000,000.0, an increase of 86% from 2,100,000,000.0 in the first quarter of twenty twenty four. Gross margin was 84% as compared to 81.9% in the first quarter of twenty twenty four. Operating expenses were up 36% year over year and down 12% Q over Q to 1,300,000,000.0.

[Arthur Yu Chen, Chief Financial Officer at Futu]

R and D expenses were three eighty six million up 15% year over year and down 3% Q over Q. The year over year increase was primarily driven by investing AI capabilities and the related technology initiatives. The Q over Q decline was mainly due to the sequential decrease in R and D headcount. Selling and marketing expenses were $459,000,000 up 57% year over year and down 1% Q over Q. The year over year increase was roughly in line with the growth of our new fund accounts.

[Arthur Yu Chen, Chief Financial Officer at Futu]

The Q over Q decrease was mainly due to lower client acquisition costs partially offset by the sequential increase in new fund accounts. G and A expenses were $415,000,000, up 38% year over year and down 28% Q over Q. The year over year increase was primarily due to increase in the general and administrative headcount to support overseas develop overseas market development. And the Q over Q decrease was mainly due to bonus accrual for general and administrative personnel in the previous quarter. As a result, from operations increased to 125% year over year and the 21 Q over Q to 2,700,000,000.0.

[Arthur Yu Chen, Chief Financial Officer at Futu]

Operating margin increased to 57.2% from six from 46% in the first quarter of twenty twenty four, mostly due to strong top line growth and operating leverage. Our net income increased by 107 percent year over year and 15% Q over Q to 2,100,000,000.0. Net income margin expanded to 45.6% in the first quarter as compared to 39.9% in the same quarter last year. Our effective tax rate for the quarter was 18.6%. That concludes our prepared remarks.

[Arthur Yu Chen, Chief Financial Officer at Futu]

We now like to open the call to questions. Operator, please go ahead.

[Operator]

First question comes from Cindy Wang of China Renaissance. Please go ahead.

[Cindy Wang, Director at China Renaissance]

Thanks for taking my call. I have two questions here. First, the overall Hong Kong and U. S. Stock market fluctuated greatly in April and May.

[Cindy Wang, Director at China Renaissance]

Could you give us some color on the trading velocity, trading volume and the margin financing security lending balance on your platform so far in second quarter? Second question is, recently, we see Futu Bowl and Momo launch membership program. Could you let us know what the business model looks like for this program? And how many paying clients have already subscribed these services? In the long run, what do you expect the benefits could bring to the Futu? Thank you.

[Daniel Yuan, Chief of Staff to CEO, Head - Strategy & IR at Futu]

So the new funded accounts in the second quarter will probably see double digit sequential decrease sequentially, mostly due to a very high base on the first quarter. But overall, we maintain very strong client acquisition momentum in the second quarter. And we are very confident to hit our 800,000 new paying clients guidance for 2025. And with very big market volatility, clients continue to trade very actively. And based on the current run rate, we expect a further sequential increase in total trading volume.

[Daniel Yuan, Chief of Staff to CEO, Head - Strategy & IR at Futu]

Clients also deposit a lot of assets into our platform according to date based on the run rate. Net asset inflow will stay at a very high level similar to what we saw in the first quarter, coupled with a mark to market positive impact since the April due to the market rebound, we expect a further sequential lift to our total client assets. Thank you.

[Arthur Yu Chen, Chief Financial Officer at Futu]

In terms of the membership programs we've launched recently, it is more catered to our wealth management products clients, particularly for these clients with huge assets or higher trading velocity or even have some particular risk appetite into some alternative alternative, you know, wealth management products. So we will start to layer different clients in terms of their risk appetite, their client assets, and different product needs. Given we just launched the programs recently, the penetration and the absolute number of these membership clients versus our total clients, the proportion is still very small. Thank you.

[Operator]

Thank you for the questions. One moment for the next question. Our next question comes from Charles Chou from UBS. Please go ahead.

[Charles Zhou, Managing Director at UBS Group]

So first of all, congratulations to the management. I think it's a very strong set of results and beat the consensus and also our estimate. So I have a two question. The first one, could you please maybe just give us a little bit more colors about the timeline of your crypto trading business and also the implication of the passage of the Hong Kong stable coins bill recently to a company. The second question is about, can we talk about the customer retention and also the client AUM following the rising, you know, recent concern over the taxation on Mainland China clients oversee investment income? Thank you.

[Daniel Yuan, Chief of Staff to CEO, Head - Strategy & IR at Futu]

So the crypto prices experienced some pullback since first quarter That affected the enthusiasm of the crypto investors on our platform. But the monthly trading volume and the number of crypto traders stayed at a pretty high level. And since May, the crypto prices rebounded, and we've seen investors quickly picked up interest in crypto trading, and we also saw a rebound in daily trading volume. We'll continue to build crypto related product capabilities. Recently, we launched the crypto deposit functionalities in Hong Kong, which made it easier for our clients to seemly seamlessly deposit the crypto onto Futu's platform and make it easy to switch between different asset classes.

[Daniel Yuan, Chief of Staff to CEO, Head - Strategy & IR at Futu]

So after we launched this function, we got very good feedback from the Web three community and also very positive feedback from our clients. And we plan to launch crypto withdrawal functions very soon. We also launched the crypto paper trading function in Hong Kong, and we're the first regulated crypto platform to allow for paper trading, which really helps the newbie investors to familiarize themselves with the trading rules and and the trading procedures, especially during market volatility. A couple of days ago, we launched crypto trading on a on a grayscale basis and in most of the states in The United States, and we now support, over 30 mainstream cryptocurrency trading. We'll closely monitor our clients' trading behaviors to iterate on our product, and we plan to increase the number of cryptocurrencies in in the near future.

[Daniel Yuan, Chief of Staff to CEO, Head - Strategy & IR at Futu]

So from a long term perspective, we are very bullish about virtual assets as as an asset class. And for FUTU, the take rate for crypto trading is higher than cash equities. And we believe that as the regulatory landscape and the regulatory guidelines to come in more clear, there will be more cryptocurrency allowed and more functions allowed and which will bring through to more ways to monetize from this asset class. And we believe that whether it's from an AUM or revenue perspective, crypto has a has so much potential, and we're still in the very, very early innings. And in terms of stablecoins, we are aware of the relevant regulations being released recently.

[Daniel Yuan, Chief of Staff to CEO, Head - Strategy & IR at Futu]

And Airstar Bank invested by FUTU participate in the stablecoin sandbox and exploring ways to to do stablecoin custody. Thank you. Now many, yeah, now many countries in the world have participated in this common reporting system. And for the countries that participate in the common reporting system, that the the CRS rules apply to all of the licensed financial institutions, whether it's banks or insurance companies or brokers, and there is a very clear set of rules that is executed consistently across different financial intermediaries. And although United States is not part of CRS, it has its own FATCA system, which establish this tax information exchange mechanism with most of the mainstream countries in the world.

[Daniel Yuan, Chief of Staff to CEO, Head - Strategy & IR at Futu]

And as all of the other licensed brokers in Hong Kong, without the explicit request from the Hong Kong SSC and if it's not complying with the relevant laws and regulations of Hong Kong, Futu Securities will not disclose client information and client data to any third parties. So we've noticed that on the Internet, there have been some rumors about Futu disclosing client data and client trading information to third parties, And we want to make sure that everyone knows that these are very baseless rumors. And we always adhere to regulatory requirements. And we want our clients to also correctly understand and interpret these laws and regulations. So we've actually done a lot of education in this area as well.

[Daniel Yuan, Chief of Staff to CEO, Head - Strategy & IR at Futu]

And so far, we have not seen this leading to meaningful client attrition and asset outflow. Thank you.

[Operator]

Thank you for the questions. One moment for the next question. Our next question comes from the line of Emma Xu of Bank of America Securities. Please go ahead.

[Emma Xu, Analyst at Bank of America]

So congratulations on another quarter of outstanding performance. I have a question regarding Hiber. Recently, Hiber dropped sharply. How will this impact your net interest income? Meanwhile, with HIBOR falling, are we seeing changes in client behavior such as increased fund deposits and more allocation to money market fund equity asset or more active trading? Thank you.

[Arthur Yu Chen, Chief Financial Officer at Futu]

In our last earning call, actually we provide a sensitivity analysis assume every 25 basis rate cut, our pre tax monthly pre tax profit will be down 8 to 10,000,000 Hong Kong dollars roughly. But since the since the Fed rate cut last year by 50 basis point, we see the overall interest income revenues in the first quarters continue to grow on a Q on Q basis, which is mainly because the average size of our idle cash balance largely offset the rate cut implications. At the same time, as you mentioned, the recent declines in highbots which trigger more clients trading activities in terms of velocity and consequently, we will benefit from the trading commissions. On the other hand, we think the recent sharp declines by HIBO maybe just a temporary partially due to certain mega IPOs in Hong Kong. So whether it will be sustained in such low level, is still way to see. Thank you.

[Operator]

Thank you for the questions. One moment for the next question. Our next question comes from the line of Shiyang Huang from Morgan Stanley. Please go ahead.

[Chiyao Huang, Analyst at Morgan Stanley]

So my first question is on the client asset inflows as it's hitting a record high this quarter. And so just wondering the mix of inflows by different regions, especially from a non Greater China region contribution and what's the outlook for the full year? And second question is about, is there any quantitative metrics that we can look at to measure the adoptance or engagement satisfaction and the client stickiness arising from the AI tools that we have launched? And what could potentially be do could could be done more in this space? Thank you.

[Arthur Yu Chen, Chief Financial Officer at Futu]

Then in terms of the first quarter asset inflows, actually we see a very strong inflow momentum across our seven different markets. The overall asset inflow by the group increased over 50% Q on Q basis. And also as Leaf mentioned in the opening remarks, it is the our record high in a single quarter numbers. That in terms of the geographic breakdown, Hong Kong and Singapore still are the majority contributor markets for the air inflows. And going forward, we are constructively positive on the overall on the full year asset inflow situation. Thank you.

[Daniel Yuan, Chief of Staff to CEO, Head - Strategy & IR at Futu]

So we've launched the Food to Go AI functions for about two months now. So it's not been that long. We're still analyzing more data. But based on the preliminary numbers we have seen, the our users have very good feedback of our Food to People AI function. And that also leads to more engagement and activity on our platform.

[Daniel Yuan, Chief of Staff to CEO, Head - Strategy & IR at Futu]

We've also packaged our AI functions into our membership programs. So there's a limited number of free questions you could ask to to AI, and that depends on the tier of your membership. And that is based on the client assets and the trading behavior on our platform, which means that the AI function has helped with net asset inflow and and the trading velocity. I think that's why we're trying to roll out AI functions to more international markets based on the initial traction we have seen of our Hong Kong clients. Thank you.

[Operator]

Thank you for the questions. One moment for the next question. Next question comes from Yu Fang of CICC. Please go ahead.

[Analyst]

This is from CICC, and I have two questions here. The first one is about the customer acquisition cost of the CICC. We see it decline much this quarter. So what's the reason behind? And do you have any new guidance for the future CAC?

[Analyst]

And the second question is that we see we have announced that you entered the new New Zealand market. Would you please share more color on this market?

[Arthur Yu Chen, Chief Financial Officer at Futu]

In terms of the CAC, in the first quarters, the average CAC we reached around the, you know, in the first quarter is around the HKD 1,800, which is relatively lower than our objectives in the beginning of this year, partially due to a very strong market tailwinds we got regardless in China, the China assets rerating, very strong IPO markets in Hong Kong and volatilities in The US. And in these trading windows, our marketing colleagues, you know, time they catch these windows and thanks to our brand equities influence as well, we got a very good result. Going forward, we do expect, you know, we will continue to set client growth as our first priority. At the same time, we will further emphasize our brand building deployments in terms of the fundings. So in the long run, we think the further income of the brand equity will let us become more resilient in different trading investment cycles.

[Arthur Yu Chen, Chief Financial Officer at Futu]

So the investment on this brand equity, the effect in the near term, is very difficult to predict. Not to mention the overall market environments and the macro environment is due include a lot of uncertainties. So from the prudence angles, we will maintain our full year guidance on CAC unchanged, but we will revisit this assumption in the coming quarters. Thank you.

[Daniel Yuan, Chief of Staff to CEO, Head - Strategy & IR at Futu]

Is now the number two broker in Australia, and we've accumulated a lot of brand equity, and we feel like expanding into New Zealand was a natural extension. And we've also seen that, you know, Australian stocks and US stocks are the two most popular asset classes for Kiwi investors, and we have already built very strong product capabilities for these two products in Australia. So expanding to New Zealand will not incur much investments in terms of, you know, licensings or personnel or r and d, and we can largely replicate the IT infrastructure and the marketing resources and the brand equity we've built in Australia. So the incremental cost will be quite manageable, and we think the New Zealand business will present very favorable ROI. Thank you.

[Operator]

Thank you for the question. One moment for the next question. The next question comes from Peter Chang from JPMorgan. Please go ahead.

[Peter Zhang, Analyst at JP Morgan]

Thanks for giving me the opportunity to to ask questions. This is Peter Zhang from JPMorgan. I have two questions. First is about the effective tax rate. We noticed that effective tax rate pick up in first quarter to 18%.

[Peter Zhang, Analyst at JP Morgan]

Well, wondering what's the reason behind and what's the medium to long term effective tax rate level for FUTU going forward? Second question is about the blended commission fee rate. We noticed that in first quarter, blended commission fee rate stabilized and pick up slightly. We wish to understand the reason behind and what will be the trend going forward. Thank you.

[Arthur Yu Chen, Chief Financial Officer at Futu]

In terms of the effect tax rate in the first quarters, this quarter our effect tax rate is around 18.6%. There are two reasons behind that. One is as more and more our overseas, you know, markets start to generate a profit. The historical accumulated tax credit has been fully utilized, which will, you know, consequently enhance our overall group tax effect tax rate. Secondly, after the implementation of pillar two by OECD in different markets and the different countries, our overall effect tax rate will will be impacted to some extent as well.

[Arthur Yu Chen, Chief Financial Officer at Futu]

So I would do expect, you know, our overall effect tax rate will maintain 17 to 18% in the coming quarters. Then for the second question regarding the blended blended commission rate changes, actually, there's a slightly uptick on a q on q basis in terms of the blended blended commission rate. The reason behind that is mainly due to the the product mix change. There's more clients trading on certain derivatives such as, you know, US options, etcetera. Going forward, as we were launching more new products, for instance, the crypto trading, etcetera, I do I do expect that our overall blended commission rate will maintain stable. Thank you.

[Operator]

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

[Alan Chan, Investment Banking at Citi]

Thanks management for giving me the chance to ask a question. This is Alan from Citibank. My first question is on Hong Kong markets. So Futu previously has a market share target of about 40% in Hong Kong. That basically implies about 1,000,000 paying customers in Hong Kong.

[Alan Chan, Investment Banking at Citi]

So judging from our 1Q numbers, our paying customer numbers is already approaching close to around 900 k 90 k 900 k. And given the pace of our new paying customer acquisition in Hong Kong is so fast, we think our long term goal of market share of 40% in Hong Kong is probably within reach within the next couple of quarters. So against this backdrop, wondering if management could share your updated view on the Hong Kong markets, especially considering that there's recent changes in the competitive landscape with potential competition for Ant Group and Robinhood. If we look beyond the 40% market share, how much additional headroom do we see to further increase market share in Hong Kong? The second question is on interest income.

[Alan Chan, Investment Banking at Citi]

We see that idle cash balance has grown very notably during the first quarter. Wondering if management could help us break down the interest income. How much of that is coming from idle cash? And how much of that is from our margin financing, security lending, etcetera?

[Arthur Yu Chen, Chief Financial Officer at Futu]

In terms for for the second question regarding the the idle cash, roughly, you know, the idle cash related income account for 35 to 40% of our total interest income for this quarter. The very strong robust increase in in the revenue arising from idle cash partially due to two reasons. Number one is we got a very strong net asset inflows from, you know, existing clients, not to mention a lot of new clients we acquired in the first quarter. Secondly is due to the market was quite volatile in the first quarter. So in our observation, a lot of clients actually, know, partially inclined to increase their cash position and the lower their stock positions so which is you know we got some benefit of arising from that as well. Thank you. Over to you.

[Daniel Yuan, Chief of Staff to CEO, Head - Strategy & IR at Futu]

So in terms of our Hong Kong market share, the absolute number of fund accounts you mentioned applies to our Greater China business, while the market share target you mentioned was about our Hong Kong local business. So these two numbers are not apple to apple comparisons. In the past two quarters, we have seen the Hong Kong market contributed the highest number of paying clients among all of our seven markets, which is which gave us confidence that as a leading broker in Hong Kong, we'll be able to gain outsized benefits from favorable market conditions. And we think that our Hong Kong business has huge runway for growth both in terms of client numbers and client assets. And the Hong Kong market has never been short of competition.

[Daniel Yuan, Chief of Staff to CEO, Head - Strategy & IR at Futu]

And in the past few years, there have been a number of our peers, very notable peers entering into Hong Kong. But regardless how the outside market environment changes, we've always been doing product innovation and product iteration. And we believe that our product capabilities have built a very strong barrier to entry for our business. And we in each and every market we enter into, we build very customized product experience, very innovative product features, And coupled with our superior user experience and very competitive pricing strategy, we continue to gain user mind share in Hong Kong and and take market share. And on top of that, we think brand is probably one of the most important intangible assets of financial services platform, and building a brand takes time.

[Daniel Yuan, Chief of Staff to CEO, Head - Strategy & IR at Futu]

And Futu has built a considerable level of trust with our clients, and we've seen very, very high client stickiness on our platform. It's consistently above 98, 90 nine percent on a quarterly basis. So if there is a newcomer that cannot provide highly differentiated product experience and service, we don't think it can sway the client choices. And as we continue to build our brand, we also see higher number of high net worth clients in Hong Kong, which contributed to a very high net asset inflow quarter over quarter. And we've also seen that when the clients choose a broker, that decision is usually multi dimensional, whether it's applying a zero commission strategy, or just to direct traffic from other platforms.

[Daniel Yuan, Chief of Staff to CEO, Head - Strategy & IR at Futu]

We don't think either one is gonna achieve very desirable effects. The users will choose the platforms that are compliant, that have high brand recognition and have the strongest all rounded capabilities. Thank you.

[Operator]

Thank you for the questions. Our last question comes from Zoe Zhong from Jefferies. Please go ahead.

[Zoey Zong, Analyst at Jefferies Financial Group]

Thanks, management, for taking my questions, and congratulations on your solid results. I have two questions. Firstly, I have a follow-up question on Futu four AI. Management mentioned that more AI products will be launched in overseas markets in q two. So wondering what's your AI product strategies and the investment scale?

[Zoey Zong, Analyst at Jefferies Financial Group]

And my second question is about VATP. Could you please share an update on the business development with your VATP license? Thank you.

[Arthur Yu Chen, Chief Financial Officer at Futu]

For for VATP license, there's actually, there's no any, you know, update in the first quarters despite we got short list by Hong Kong SRC for VATP license alongside with other couple of applicants. Now we are still in the in the process of phase two. There are still a lot of validations need to be conducted by the third party consultant, independent consultant, and there's a lot of, you know, process testing work need to be complete in order to get the final approval from SFC. We will keep you posted for there's any progress. Thank you.

[Daniel Yuan, Chief of Staff to CEO, Head - Strategy & IR at Futu]

In terms of our AI strategy, Futu has assembled our own AI team. We're closely monitoring the industry developments and keeping up with innovation. So the AI is applied in two ways of two to one. Internally, use that to increase operating efficiency. And we also leverage AI to develop new products and features for our clients.

[Daniel Yuan, Chief of Staff to CEO, Head - Strategy & IR at Futu]

And in terms of operation efficiency, we've already leveraged AI in a number of scenarios, including customer services, the account opening documentation, verification processes. And we've seen AI bring intangible uplift to our operating efficiency. And in terms of our client facing features, we think that for active traders, a key benefit of AI would be to lower the investment investment threshold, and help them more efficiently gather information to make informed investment decisions. For example, we'll launch algo trading very soon. So before algo trading this almost exclusively for the sophisticated institutional investors.

[Daniel Yuan, Chief of Staff to CEO, Head - Strategy & IR at Futu]

And now for our retail clients by telling AI, the stock you were interested in, the parameters you want to monitor and what kind of conditions will trigger trade. Our AI can generate an algo trading function for our clients, which we think significantly lower their barrier. So around that goal, and we'll continue to innovate to bring more AI powered features. Thank you.

[Operator]

Thank you for the questions. With that, I would like to hand the call back to mister Daniel Yuan for closing.

[Daniel Yuan, Chief of Staff to CEO, Head - Strategy & IR at Futu]

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]

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

Participants

Executives

• Daniel Yuan, Chief of Staff to CEO, Head - Strategy & IR
• Arthur Yu Chen, Chief Financial Officer

Analysts

• Cindy Wang, Director at China Renaissance
• Charles Zhou, Managing Director at UBS Group
• Emma Xu, Analyst at Bank of America
• Chiyao Huang, Analyst at Morgan Stanley
• Analyst
• Peter Zhang, Analyst at JP Morgan
• Alan Chan, Investment Banking at Citi
• Zoey Zong, Analyst at Jefferies Financial Group