Q2 2021 Futu Holdings Ltd Earnings Call
[music].
Hello, Ladies and gentlemen, welcome to food to holdings second quarter 2021 conference call.
At this time all participants are in a listen only mode.
After the managements prepared remarks, there will be a Q&A session. Today's conference call is being recorded.
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 You won chief of staff and head of IR at food too.
Please go ahead Sir.
Thanks, operator, and thank you for joining us today to discuss our second quarter 'twenty 'twenty. One earnings results joining me on the call today are Mr leaf Li Chairman and Chief Executive Officer, Arthur Chen Chief Financial Officer, and Robin shoot Senior Vice President.
Remainder today's call May include forward looking statements, which represent the company's belief regarding future events, which by their nature are now certain and are outside the company's control.
<unk> looking statements involve inherent risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from those contained in any forward looking statements.
More information about the potential risks and uncertainties. Please refer to the company's filings with the SEC, including its registration statement.
So with that I will now turn the call over to leaf leaf will make his comments in Chinese and I will translate.
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Ladies five into Georgia check that box.
Hello, everyone. Thank you for joining the earnings call today, we achieved the milestone of 1 million paying clients as of the end of second quarter translating into a 230% year over year growth.
In addition, with 211000, our second best quarter in history.
Our relentless pursuit of premier user experience and brand image rewarded us with yet another quarter of rapid client base expansion over 50% organically acquired paying claims and a high paying client retention rate of 97, 8%.
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Going forward, our key growth strategies would be to defend and extend our leading position in Hong Kong further take market share in Singapore and drive self clearing in the U S to improve monetization and operational flexibility in the second quarter, Singapore contributed nearly half is already paying.
James.
Singapore represents a blue ocean opportunity and we will leverage marketing and word of mouth referrals to further capture user mindshare.
In the U S. Our self clearing initiatives reported accelerated progress as we now have migrated about 350 docks to our proprietary clearing system where.
We are targeting to self clear, 50% of the U S stock by the end of this year.
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Our total client assets were $503 billion at quarter end, representing 253% growth on a year over year basis, and 9% growth on a quarter over quarter basis, despite challenging mark to market impact.
Client assets came down sequentially to 503000, Hong Kong paying client acquisition, and new market picked up and Drax average balance.
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Total trading volume was up 104% year over year to $1 three trillion dollar of which U S trading constituted approximately 64% trading.
Trading volume came down meaningfully from the first quarter due to a much lower turnover rate across different trading markets and client cohort.
We have seen our clients stay on the sidelines amid market uncertainty and we expect our trading volume growth in the coming quarters to be driven mostly by expansion in claim counts and assets rather than trading turnover should current market environment per se.
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Our wealth management business money plus has been relatively immune to the market downturn.
The Hong Kong IPO at the ended the quarter. It took away some of the assets accumulated over the quarter and we expect steady as a balanced growth in coming quarters.
As of June 30th over 74000 clients health wealth management position and total client assets in wealth management were $21.0 billion, Hong Kong dollars up 59% year over year, and 5% quarter over quarter money.
Money plus established new partnerships with southern exactly people at the managers in the quarter, including Goldman Sachs UBS in principle.
We also became the exclusive distributor for China, AMC to like Greater China Technology plan, the only China technology focused mutual fund in Hong Kong.
We continue to innovate on product features we.
That fund portfolio rebalancing function and upgraded the functionality if money market funds, where clients can now off to automatically subscribed and the team money market funds based on their idle cash and margin balanced position.
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Our enterprise business Ctrip has 186 IPO in Iowa plant as well as 263, he saw solutions clients back a quarter and representing a 181% and 153% year over year growth respectively.
We continue to enhance the value proposition of our Ito business by providing an end to end one stop solution and various value added services for the management team and employees for their corporate clients.
Our experience in handling complicated aesop granting that scale across different geographies helps us continue to win over large scale corporate clients.
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Despite low paying client attrition, we're encouraged to see robust user engagement data as average CEB remained above $1 million and daily average user time spent hovered around 30 minutes each trading day in June.
In an effort to drive user engagement, we continue to enrich content in our social community by attracting different stakeholders and improve content recommendation.
As of quarter end over 600 companies have set up enterprise accounting, our social community to interact with retail investors, providing our users and valuable data to facilitate the investment decision making.
Sure.
Jim So since IPO.
Just all of them, but you know that's how we'll get yet.
Next I'd like to invite our CFO Arthur to discuss our financial performance.
Let's leave it at that.
Please allow me to walk you through our financial performance in the second quarter. All numbers are in Hong Kong dollar unless otherwise noted.
Total revenue was $79.0
$79.0 billion, an increase of 109% from the second quarter of 2020, and a decrease of 28% sequentially.
Focused commission handling charge income was 798 million up 95% year over year and down 40% across.
Appealing to the client was mainly due to a sharp drop in trading income over amidst the COVID-19 market sentiment from about six times in the first quarter to three tons in the second quarter to be specific.
This was partially offset by higher client assets and a slightly sequential uptick in the commission rate to $6 one basis point.
Interest income was 610 million, an increase of 194% year over year, and a decrease of 7% Q on Q, but year over year increase interest income was mainly driven by higher margin financing balance highest liquidity borrowing in the lending servicing hub as well as higher ico financing income.
Allow the quarterly decline can be mainly attributed to a reduction in security borrower income at the market value of USD borrowing in the borrowing rate both dropped sequentially.
Other income of 169 million up 141% year over year, but down from the 4% Q on Q.
Year over year growth and the trunking declines can both be attributed to changes in our IPO subscription service charge income and currency exchange service income as market conditions fluctuate.
In terms of our protocol was 279 at an increase of eight 1% from the same quarter last year and a decrease of 37% from last quarter.
Focused commission and handling charge expenses was 145 minute increase.
89% year over year. This increase was roughly in line with our tenure of our focused commission and handling charge income.
Interest income was 18 million up 90% year over year. The growth was primarily due to number one higher cost associated with our security borrowing in the lending business and the number two higher margin financing interest expenses, driven by higher margin financing balance, partially offset by lower cost of funding.
Processing and servicing costs were 54 million up 48% year over year. The increase was primarily due to the increasing crowd the service fee to process higher number of concurrent with weight.
As a result total gross profit was $4.0 billion, an increase of 143% from $534 million in the same period in 2020.
Often market increased from 77, 6% in the second quarter of 2020 to 82, 3%. This quarter. Thanks to high operating leverage as a result of our larger business scale.
Total operating expenses was up 145% year over year, and 32% Q on Q$649.0 million over 40% of which was related to our international initiatives in Singapore and the U S market.
R&D expenses was 173 million, an increase of 48% year over year, and then 26% Q on Q roughly.
Roughly in line with our R&D headcount increase we continue to invest in our U S clearing capability and the dedicated at around the 40% of our R&D personnel to product development in Singapore, and the U S to drive a smooth and a customer.
Product variance for local businesses.
Selling and marketing expenses was $377 million up 292% year over year, and 7% Q on Q increase was primarily due to higher branding and marketing spending, especially in the international markets to cultivate brand image and acquire new clients in the second quarter of 2020.
Over half our sales selling and marketing expenses were devoted to the overseas market.
G&A expenses were flat at six 1 million, an increase of 91% year over year in the 24% of <unk>. He was the increase in headcount or general and administrative personnel.
Our effective tax rate increased from 9% in the fourth quarter to 14, 5% in the second quarter since our total tax credit arising from accumulated loss in the mainland business has been fully utilized so far and our net revenue derived from our U S trading declined in the second quarter.
Forward, we do expect our effective tax rate to be in the range of 12% to 14%.
As a result, our net income for the quarter increased by 146% year over year and decreased by 54% Q on Q$536.0 million.
That concludes our prepared remarks, we'd now like to open the call to questions. Operator. Please go ahead.
Thank you ladies and gentlemen, we'll now begin the question and answer session. If you wish to ask a question. Please press star one on your telephone keypad and wait for your name to be announced if you wish to cancel your request. Please press the pound or husky.
Your first question comes from Catherine Liu of Morgan Stanley. Please ask your question.
Hey, Thank you got it sounds good what should actually when it seems like most of my questions I need to understand what you said.
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Controller Kenosha quick question lumber in Japan, actually Sean Sean I'll send it to you were talking about the whole fall or do you have a question from Paresh Bounceback Thiago.
Thiago Duarte, Joshua James <unk> Jeong hwan Choi.
Jacqueline Ko ADR does Europe, which would you see on Central Park West you'll note that should the coupons.
I'll translate for myself so.
I have two questions first is.
Uh Huh Diminishment police gave some guidance in terms of the third quarter to date results, including client acquisition pace per.
Per capita.
Turnover velocity client acquisition cost and maybe some operating expenses growth rates and second in light of the regulatory uncertainties regarding rate structure of companies on the APR or does the company have and its plans regarding Hong Kong listing. Thank you.
Thank you Catherine. This is also I will take these two questions first of all just quarter to date I just want to share some color definitely I think the market fluctuations quarter do they have some negative impact on our average assets sulfides in the roughly our average.
<unk> will be down around in the range of 10% to 20% mainly attribute to the market to market loss.
But you know.
We are very confident because even quarter to date almost everyday we still see meaningful net asset inflows in terms of.
The wealth accumulation into two platforms. Therefore, I do think the market back to normal our season marketing market loss, Okay will be come to the to the to the average numbers and.
Hum.
In terms of the clients trading velocity, we do expect trading velocity has some of the above.
In July and.
August.
Given the market, especially in Ohio.
Exports.
Meaningful setbacks, we do see some bottom efficient from the retail investors and.
Like many.
The situation in second quarter, many investors on the sidelines, we do see some.
Participations in the in the third quarter. So if based on the current run rate I would expect in terms of topline we may see some sequential Q on Q increase.
For the quarter compared with the comparable with the second quarter in.
In terms of the.
Our acquisition cost I think even on the absolute amount levels.
Marketing campaign spending will be roughly in line with what we did in the second quarter, but definitely in our supply acquisition speed will slow down due to the market conditions.
This will effect.
But the normal denominator numbers and we'll let our CAC numbers have slowed.
The increase in the in the first quarter compared with the second quarter.
Second question.
I think the number one all of the ice structure is slightly different for many.
With many Chinese.
ADR companies because most of them all of revenue analogy right from the offshore essentially that we do not generate any revenue from all of the guidance structure. So evil.
There will be some new regulation.
The VIP structure I do not expect that it will have some meaningful impact operational wise or financial life.
All business.
Definitely we have noticed some recent trends in the capital markets and we are actively conducting quality research and evaluation and gets us about we will make a very comprehensive assessment to ensure that sufficient to maximize our shareholders' best long term interest estimate thank you.
Okay.
Thank you very much.
Your next question comes from Ethan Wang from CLSA. Please ask your question.
Cause it to their clients. So if you.
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And Jacob one trend to a primary listing.
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So I'm not so sure where you were just young women.
Sawyer with Doctor searching for onshore that she had broker teaching children cornerstone conversion, where do you see either from CA na in Europe, where your ocean amongst these are harder than Dupont.
So thank.
Central management I have two questions surrounding the Chinese rail yard to different risks. The first one is wondering whether management can shift.
Some color on our current percentage of Chinese yards.
As a percentage of the total trading volume.
The U S Europe stocks.
For two and a.
Second one is if the roof of the listing for the China food yards really happens on.
These companies are very likely to convert that from Congress to influence the primary ones that means they will be included in our connect IQ, which means there.
China is going back to your country those stocks to AUM.
A ton of brokers, that's not a very big risk from.
Managing management brokerages.
Sure.
Okay. Thank you I will take the first question as well leaf.
My colleagues logging in and the leaf for the second question in terms of our currently use both tradings.
Essentially just account for a very small pop.
We do some of that testing around 15% of our U S book trading spit onto these Chinese ADR.
Robin.
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Other than these people.
Tencent could slow the DSO Levi Joseph.
Joe what I would say maybe the cause of the Tivo cosmetics wants you to come with a <unk> event for you.
AUM in the cocoa Quaker video, how do you think that youll be COVID-19 itself.
Yes.
Okay.
Yes, we think the return of China, Adr's back to Hong Kong could be a structural trend, although we don't really take a stance on how the regulation smoothly boss and the Hong Kong Ipos generally have very high monetization potentials, and we generate a pretty sizeable percentage of our revenue from the IPO subscription and margin financing.
Interesting also.
In Hong Kong, and Theres more friendly trading hours for our clients and also just to add on.
Other pointing about primarily about converting to primary less pain.
Well, we don't think there is the onshore brokers will necessarily pose a great spread to our business because a lot of the popular in China.
The Chinese companies per ton out of Hong Kong right now already accessed accessible Jeremy one Chinese investors through stock connect for example, Tencent.
But some of these large cap tech companies still account for a majority of our asset balance in Hong Kong stocks and in comparison to trading through a stock connect.
Trading directly in the Hong Kong market offers more flexible and more favorable trading hours in training time.
If you know mainland China has a public holiday does not affect our trading hours in Hong Kong and also there is a lot more flexibility about margin financing and there was a wider selection of stock that you kind of the best thing.
We don't believe that a number of China Chinese company converting from secondary to primary less tangible change our competitive edge in this market.
Sure got it.
Okay great.
And then Nirvana.
Google on them, how Hypervisor, Oklahoma, Shanghai really too soon.
So does it change how much inventory was a use of those with the most with which you saw a woman to surface Honda.
<unk> Joshi.
That's another COVID-19, you need useful because listening to Athena couldn't tissue.
So where did you get some grade someday.
This endeavor. So we won't go there, but what are your major lead source.
If you don't have to wait, though Shanghai offensively sounds really times had been deemed would it be on a typical year.
The only other type bogie that you got in the knee.
And we also have a very differentiated client cohort as compared to some of the onshore brokers. So we don't think our competitive advantage will be diluted shouldn't.
Circumstance actually.
Realize it.
Your next question comes from the line of facility Zhong from Jefferies. Please ask your question.
Well as we go forward.
Hum.
Can you guys just why you're talking about.
Sure.
But.
Just wanted to talk about China.
I think what are your guidance.
Hello.
Oh, yeah, well location.
Alright.
So what you might call them kick out.
Hum.
I cannot tell you what the IPO.
Okay.
Hum.
Hi management, Thanks for taking my question.
Tom Jeff and I have two questions.
That's helpful.
Regarding the tax rate I, probably have noticed that the effective parts grateful Quechua cartoons.
I wish it was much higher than the previous forecast.
Wonder what's the reason for the increase and how should we estimate this market going forward.
Quick question.
We know that Hong Kong chose to adopt that Keith talked to.
I'll call it.
Alright.
In the fourth quarter.
You are wondering how should we think about same park our IPO.
No.
Thank you.
Thank you Zoe I will answer the first question on the witness the second Hudson to leaf actually I mentioned it in our opening remarks.
While our effective tax rate increased from 9% in the first quarter to 14, 5% in the second quarter.
Actually it comes bumps twofold number one is our tax credit arising from historical accumulated loss and the China operation has been fully utilized. So this is a permanent effect and secondly is our net revenue derived from our U S stock trading.
Belonged to six main that individuals actually we can make offshore clients in Hong Kong.
But even though they are U S trading volume in the second quarter decline. Therefore, we have some temporary impact in the second quarter arising from the SEC and the reasons going forward, we expect our tax rate will be in the range of 12% to 14%.
Okay.
Hello, Good IPO Lindsay this is Glenn you need to.
Sometimes you go congrats I'll go down that you could be able to wrestle with him.
Ipos or don't believe C band, you know somebody sorry, what Michelle who without his department Cecilia.
The huntington's elements of missile looser.
That's why you see also a tissue sheets home will go goes over to Vincent Downhole motors or Honda motor homes seem to have a dozen lifetime.
So what does it mean usual tencent that guidance.
Doug about in Central Europe, you go from in Utah.
I know Tim Mulvaney him.
Sure.
Apio financing income accounted for about 4% and power revenue in the first half of this Europe.
Contribution was less than 6% in 2020, so if we aren't just seeing that the settlement period goes from T plus five P. T plus two from aesthetic point of view. This will have only a 2% to 3% negative impact on our top line, which we think it's manageable.
So anyway element.
This is Daniel.
You said at IPO previously determined IPO counterparts in the seat density shouldnt be that much of the cocoa and Angola, two notches away.
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You don't see it on hold until you kind of physically already proven by chance you talked to this a bit needs with them.
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And that you're going to Europe.
St. Joseph Abboud can give a silver on the back half can you help with this as she will go there as a whole.
So we're just going to give us Olympian black mustache.
<unk> there you go.
The machine in Shelby.
It's used in cohort and good argument timely to do.
Simple simple democracy.
Maybe if we kind of discipline.
The guidance approaches.
And this Ebola EBIT, all of which Jim BMW I cannot assure Hudson Valley new components.
I know you've got global vaccine.
Sure.
But you got to have which uses especially youll kind of convert that puts on the trends on sheet Typhoon <unk>.
<unk> you.
Yeah.
But in both of the digital single number that seem to us has only been Hudson.
The agenda you guys can actually go down a switching them over to the unions without sounding to cope with a portfolio of switches youll either E mail with Neil Kumar.
Policy yet.
Someday, telling you that the <unk> people.
I'll go back to energy.
Secondly, a lot of the IPO.
Subscription period kind of overlap with each other so we believe some of the needs for IPO subscription happened.
Under the current.
It kind of regulation and we think that could change out turn the forum, so, especially when the markets are performing really well and there are a lot of IP is happening at the same time, having a pizza to settlement period.
Can increase the capital efficiency of our clients and therefore potentially helping treat their engagement in this IPO subscription profit and also we understand that the regulations are not only the guard shortening the settlement period, but also may touch on avoiding.
The retail clients from subscribing to IPO through multiple brokers and we believe that the IPO financing income makes up a very significant income for our lives the mid to small sized brokers.
Policy to actually.
Contributing to industry consolidation and direct a lot of these retail investors to platform like <unk> that have better user experience and more capital for them to you during the IPO.
Okay.
Can you hear me.
Once again, if you wish to ask a question. Please press star one on your telephone keypad.
Once again it is star one if you wish to ask a question.
Your next question comes from Han Young Lau from 86 research. Please ask your question.
Alright. Thank you for your time here with Covid do you Wonder if you're planning on where sugar electrify the research of the hangar.
And we've got some income base, our chipotle, because when you kill you with AMC.
Through them kind of to the congressional chicken ground Prescreening machine into fixed income, which I'm sure that we've got to get you to kind of quantify particularly hopeful to realize at least hopefully you will touch on retail E. T J code LIFO.
Can you kind of update in terms of woman, sorry, I thought it would be.
The Treaty go quicker.
I will translate my questions.
Thanks management for taking my questions conversions on another great quarter.
Question on the IPO business, so uncertainties for trying to ADR IPO throughout the recent slowdown.
IPO or impact our ECM business.
And whereas obviously in parallel with that.
And then in China, So what we thought thank you.
Well.
Thank you let me take this question I think number one the slowdown.
Chinese companies overseas ADR IPO is just a temporary situation, we do understand the many Chinese companies.
The peptides and that they are waiting for more clarity.
Terms of the.
Congratulations from China, and also from the U S regulators around the road. Therefore, I think the impact will be very short term.
Having said that we also see as leaf mentioned before we see more and more U S listed companies and also.
Pre IPO companies will consider Hong Kong sales primary listing stage rather than U S.
We do have a very strong edge income.
Our home market.
It's our home base.
Therefore, we do think that all client position so through the aesop through the IPO will continue.
Just to give you to some of the some breakdown in terms of our current client acquisition channels.
<unk> already got comfortable with over 50%.
We just calculate piece of channel combined with his group account opening and we are just account for around 10% of our total new paying clients enhanced evercore.
I think the impact is still manageable.
Hey, Bonnie.
Thank you very helpful.
Okay.
Okay.
We have another question from the line of Catherine Liu from Morgan Stanley. Please ask your question.
Hey, guys everybody's home for HIFU, which have been highly retention lewinsky Sachin.
Capital quicker for Sean Sean Kim.
Sure sure.
Well kudos for Holdco cash economy.
Yeah.
Shop from Europe, where sugar.
Just wanted to touch back on the milk, how do you feel like your heart.
And then you go faster.
And that concludes the dantzler no.
I don't think that's pretty that much Omega Q4 for CECO.
Golf, which have been that you could help us out.
I'll translate for myself.
Just wondering I understand that's.
Our new markets, our initial monetization maybe.
For less importance.
This client market share, but then just wondering has management considered increasing the monetization for the Singapore market.
Whether it will be some guidance from companies or some came from companies or it won't be a natural result, as clients assets increase on the platform. Thank you.
Sure.
Let me give you some color in terms of our client profile in Singapore, I think in terms of age and they are trading velocity.
This population is very similar to what do we see.
In Hong Kong market. The average age is around 30 years old and that they do trade a lot, particularly in a quarter for the U S markets.
Now the average assets with around 6000.
<unk>.
Of course it is.
Relatively low compared with the assets.
In China and in Hong Kong, but encouragingly I think if we look at Copel basis.
The new client we acquired in March and April therefore.
Total assets already almost doubled in the past the four to.
Four to five months so back to your question I think the number one definitely we see.
The nature of our business is just more like a rolling out global we are very happy to go along with our clients in their investment journeys.
We believe as time goes by their average assets will become bigger and bigger.
Number two is definitely we will have a more service offering more product offerings in the pipeline portfolio, we will launch more business in the coming two quarters.
Since we will provide a clinical.
Clinical clients to participate in the Hong Kong IPO retail tranche.
Not to mention we will also.
And our wealth management offerings.
Pages offering to the mainland and Hong Kong people to sustainable local residents.
Therefore, I think.
We provide a more and more.
And the service, we will find a more monetization areas to enhance our offerings.
Yeah.
On the policy counts.
Thank you very much.
And there are no further questions at this time I would now like to hand, the conference back to Daniel for closing remarks.
That concludes our call today on behalf of <unk> 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 representative Thank you and goodbye.
Thank you Scott.
It does conclude our conference for today. Thank you for participating you may now disconnect.
[music].