Q1 2022 Futu Holdings Ltd Earnings Call
Hello, Ladies and gentlemen, welcome to food to holdings first quarter, two tell them to I need your earnings conference call.
At this time all participants are in a listen only mode. After management's prepared remarks, there will be a question and answer session.
Today's conference call is being recorded if you have any objections you may disconnect at this time.
I'd now like to turn the conference over to your host for today's conference call, Daniel Yung Chief of staff and head of IR at food to.
Go ahead Sir.
Thanks, operator, and thank you for joining us today to discuss our first quarter 2022 earnings result.
Turning me on the call today are Mr leaf, Li Chairman and Chief Executive Officer.
Chen Chief Financial Officer, and Robin shoot 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 in or outside the company's control.
Forward 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.
For more information about the potential risks and uncertainties. Please refer to the company's filings with the SEC, including its registration statement.
With that I will now turn the call over to leaf Li who will make his comments in Chinese and I will translate.
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Thank you all for joining us today as of quarter end, we had $1 3 million paying clients, representing a 68% growth year over year.
In the first quarter, we added approximately 82000 paying clients and we are well on track to deliver on our prior guidance of adding 200000 paying clients in 2022.
This is also the ninth consecutive quarter for which organic growth contributed over 50% is new paying clients.
Hong Kong client acquisition picked up as we leveraged our strong brand positioning leading product offering and sound financial standing to attract clients in that sector from smaller sized brokers suffering from plummeting client engagement amid a weak equity an IPO market.
Our quarterly paying client retention rate returned to the pre headline news level with over 98%.
Client retention in Singapore improved every quarter since we lost the business as we optimize client acquisition channels and incentives through rapid iteration.
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Despite dental market sentiment users continue to engage actively with a growing portfolio of content products and services and our ecosystem.
Each day of use exceeded $1 million and average user time spend was around 30 minutes for all trading days in March.
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Total client assets declined 16% year over year, and 5% quarter over quarter. The sequential decline can be attributed to sharp market depreciation partially offset by robust robust net outflow inflow across markets, notably total client assets in Singapore increased by 50.
10% sequentially, despite challenging mark to market impact.
We continue to see an inflow this high quality clients in Singapore.
The clients that we acquired in January for example, their average asset balance almost doubled by March.
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While we observed a meaningful uptake in securities lending balance margin financing balance slipped sequentially as our clients deleverage some of their margin physicians amidst market turmoil.
Total trading volume was $1 three trillion, Hong Kong dollars up 8% quarter over quarter of which U S trading constituted 64%.
Higher trading turnover in China Tech names as well as leverage and inverse Etfs contributed to the 9% and 11% sequential growth in U S and Hong Kong stock trading volume.
Meanwhile, our market share in Hong Kong futures and options trading climbed to over 6% and 12% respectively for the first time driving a further increase in blended commission rate.
In the first quarter, we continued to broaden our trading product offerings by launching V. I X futures in Hong Kong to new types of Algo order for accredited investors in Singapore as well as the U S and Australia in stocks and ETP in Australia.
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Total client assets in wealth management were 21 billion, Hong Kong dollars of 15, 9% year over year and 11% quarter over quarter.
As of quarter end over 13% of our paying clients wealth management positions, we continue to expand fund offerings for Singapore clients, including money market funds and dividend funds.
We collaborated with being why Mellon investment management at <unk>, Hong Kong to provide diversified asset allocation strategies for clients with <unk> Securities International Hong Kong.
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As of quarter end, we had 258, IPO and IR clients as well as 459, Aesop clients up 70% and a.
130% year over year.
During the first quarter, we added 59 Aesop solutions clients.
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We also expanded our enterprise service footprint in Singapore by participating in several high profile Etfs Ilp's.
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Next I'd like to invite our CFO Arthur to discuss our financial performance.
Essentially when Daniel Please allow me to walk you through our financial performance in the first quarter or the number of things in Hong Kong dollar unless otherwise noted all total revenue was $1 6 billion down 26% from $2 2 billion in the first quarter of <unk>.
Transactional brokerage commission and handling charge income was $906 million to $8 million, a decrease of 27% year over year, an increase of 13% Q over Q.
Year over year decrease was mainly attributable to lower trading volume of our very high base in the first quarter of 2021, partially offset by a higher blended commission rate of seven three basis points.
Q over Q increase was mainly driven by sequential growth in trading volume.
Interest income.
It was $575 million, a decrease of 13% year over year, and 7% Q over Q, but year over year decrease was mainly due to lower interest income from securities lending business and the lower IPO financing interest income.
And very active IPO market. The Q over Q decrease was mostly attributable to lower module financing income us calling deleveraged.
Other income.
It was $98 million down 56% year over year in the 23% Q over Q. The <unk> decrease was primarily due to lower IPO financing service charge income currency exchange service income in underwriting fee income.
Our total cost was 228 million a decrease of 49%.
$443 million in the first quarter of 2021.
<unk> Commission and handling charge expenses was $96 million down 55% year over year and up 9% Q over Q <unk> Commission expenses didn't move in tandem with brokerage Commission income due to upgrade the service package with our U S clearinghouse and the lower IPO subscription fees.
The Q over Q increase was roughly in line with the growth in trading volume.
Interest expenses.
So the alignment in all 77% year over year in the 30% Q over Q the year over year decrease was mainly due to lower IPO financing interest expenses and the lower interest expenses associated with our core lending business.
Interest expenses record a steeper declines in interest income due to lower blended funding cost as we further diversify our funding sources.
Processing and servicing cost, one 3 million up 50% year over year, and 26% Q over Q.
The increase was primarily driven by higher quality service fees to support overseas market expansion in the process of higher number of concurrent trades.
As a result total gross profit was $1 4 billion a decrease of 20% from 176 billion in the first quarter of 2021 gross margin was 86% as compared to 88% in the fourth quarter of 2021.
Operating expenses was about 50.
53% year over year down, 9% Q over Q2 748 million.
R&D expenses were 282 million up 160% year over year, and 4% Q over Q. The increase was mainly due to high higher R&D headcount as we continue to invest in U S self clearing business and to support our new product offerings in existing and new markets.
Selling and marketing expenses was $288 million, an increase of 5% year over year and a decrease of 15% in Q2.
The increase was mainly due to increased selling and marketing personnel to support international market expansion zone, largely offset by lower marketing spending.
G&A expenses was $107 million to $8 million up 128% year over year and about 18% Q over Q. The rise was primarily due to increasing head count for G&A personnel as we open the more international office.
As a result, our net income decreased by 51% year over year and increased by 15% Q over Q2 572 million our effective tax rate for the quarter was 11% and net margin was close to 35%.
That concludes our prepared remarks, we now like to open the call to questions. Operator. Please go ahead.
Thank you we will now begin the question and answer session. If you wish to ask a question now please press star one on your intelligent. Unlike for your name to be announced if you wish to withdraw your request. Please press the pound ohashi. Please standby, while we compile the question and answer roster once.
Again, if you wish to ask a question. Please press star one on your telephone.
Our first question comes from the line of Ashish from Bank of America Securities. Please ask your question.
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I'm here to ask the first question.
Great.
Even though first quarter.
A question for your second quarter late second.
Second quarter operations could you. Please run us through the major operating metrics in quarter to date and you gain market share in Hong Kong market last quarter.
Trend continued in the second quarter.
And do you expect to continue to gain market share in rest of the year.
And also how about that.
You'll either Neil.
International market. Thank you.
Thank you Emma given that this is the fourth quarter earnings call. We were more focused on the fourth quarter of situations I think.
These can give you some more high level qualitative color in terms of quarter to date situations, but maybe I can answer. Your second question first I think the trial, which we witnessed the market consolidation, especially in the half.
Paul market.
<unk> to accelerate.
In the second quarter quarter to date given.
That we think number one more and more small players start to exit the market.
Can see some small brokers, including some.
Even big one such as Ito junction.
Excess cut.
<unk>.
Both on the office in Hong Kong the growth quarter.
Currently we see more client assets migrations from the small broker <unk>.
<unk>, leading players such as <unk> et cetera.
Maybe he can give you some more colors.
In terms of second quarter overall situation.
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I think the client acquisition pace to some extent affected by end market.
And we have seen client acquisitions slow down a bit across various regions and by market in greater China region, a client acquisition remained largely stable.
With Hong Kong outperforming as Arthur mentioned on the back of market consolidation.
And in Singapore, we continue to see the clients entrust us with more of their assets and despite the robust momentum in that area.
Total client assets still experienced a single digit Q on Q decline so far.
Largely due to the mark to market impact.
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Daniel.
Yeah, So we're going to share some color on our <unk>.
Singapore and U S client cohort and in Singapore, we saw robust growth and but it's not as unemployment and average client assets.
As of the end of the first quarter average assets per paying client in Singapore have exceeded 9000, and Singapore dollars, which represents a sound quarter over quarter growth and for example for the clients that we acquired and defense recent quarter, they're not outside of inflow in the quarter increased to around 6000 in Singapore.
$4, which should only be realized in about three to six months for those clients that we acquired right. After we launched in Singapore, and generally we saw improving quality and quantity of clients in Singapore, which is in line with our overall expectations, when we launched and Singapore.
A little bit about our U S business. So despite the rapid growth of clients in the U S. In the first quarter average assets for clients still suffered a decline.
And for the rest of your will put more emphasis on improving client quality and we also continue to adjust our client incentives for different client acquisition channel in order to test the client acquisition efficiency.
For clients with different profiles and justify certain fluctuations in the number of new clients and average assets per client in the U S. Thank you.
Thank you that's very helpful.
Thank you. Our next question comes from Leon Qi from Daiwa. Please go ahead.
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Two questions today.
Yeah.
On the trading side appreciate that management mentioned in your opening remarks.
The blended commission rate actually.
Sizable.
Yeah.
This is mainly because of a number of new noncash equity product songs.
Our English Etfs VIX futures.
Although product in Singapore, just wondering that.
Over a longer time horizon.
Management have any ideal splits and the trading volumes between cash equity and derivative products and also impossible appreciate management through shed some color.
On the pipeline.
Moving to our major market.
The second question is that I'm, just wondering if management could give any update on the progress of your R&D expenses.
So we actually view investing heavily on the R&D side, just wondering if you have any updates compared with.
The guidance that you gave us a quarter adult only the timing of on the timing when we could see.
These investments I. Thank you very much.
Yes.
Hey, Kelly this is Tom I will take these two questions number one just give you some a little bit about.
About that.
Derivative tradings contributions for our total trading commission.
The erosion of our costs roughly 30% in this quarter I think the contribution from <unk>.
In the fourth quarter was particularly high due to the market conditions a lot of investors looking for instruments to do that happens when the markets regardless in the in the U S Chinese ADR or long haul markets.
Quite volatile in the first quarters. If you look at our long term strategy I think number one is we do not encourage people to trade is the robotics I think the guiding principle for us is to let investors understand the risks associated with these.
Very complicated trading instruments, but at the same time definitely we.
After we provide sufficient investment education, we do want investors to use these instruments.
To make a much better.
Risk reward return.
Versus other organelles to.
The online brokers such as robbing pool.
The U S players you can see.
The outlook for.
Our revenues contribute much much higher total.
Total revenues compared with us, which accounts for roughly 45%.
Even to 50% above therefore, I think our current.
30% contribution is healthy we do.
At the same time.
There was a huge room for.
Yes.
Hong Kong Corruptive development.
The more and more Chinese ADR go back to go back to the Hong Kong there will be more.
Market trading liquidity English markets, which definitely will be a huge plus for our derivative business in Hong Kong down the road.
For your second question the R&D expenses as we.
Provides certain items intangible.
Staff had a comp increase this year and the beginning of this year, we project, a roughly 20% head count year over year increase and we maintained this budget so.
So far I think we learned in the first quarter roughly our head count increase.
5% Q on Q basis, therefore, everything is on track multiple behind the expenses actually belonged to the salary.
And they are going up.
The bonus fall on the personnel I do think they work very very hard.
Two.
Make the things forward, especially for some key projects such as U S. Self clearing and also some new products to be launched in the second half of this year.
That's very helpful. Thank you.
Thank you.
Thank you. Our next question comes from Zoe <unk> from Jefferies. Please ask your question.
Hey, guys just wanted to acknowledge mainland uncle Sam.
Can you give us a woman comes I'll kill you go for quite some time.
A chunk of the client.
You've got some a contour for your total book of 10 minutes.
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I was wondering I think she also brings with him for quite some time.
Yes.
Thank you management for taking my questions I have two questions. So my first question is on our customer acquisition cost. So it's something that will kill them with the client and customer acquisition close in Q1, I'm wondering how should we think or bounds to trend in Q2 and future and my second question is that.
We will launch our business in Australia.
So could you. Please provide some color on this because these are topics Glenn Arthur paying clients and the customer acquisition cost in Australia.
Okay.
Okay.
Thank you.
The second question too deep and I will address your first question regarding the CIC.
Youre right I think.
The overall FDIC costs in the fourth quarter around the 3500 <unk>.
Surpass our.
The budget of 25 to <unk> 100 and the.
Beginning of this year the reason is.
In the first quarter actually we have some advertisement campaign commitment, which we have already made the last Q4 and as these campaigns has been carried forward to the fourth quarters.
The remaining three quarters, we just think.
There can be sequential.
In terms of in terms of absolute CIC amount.
Hopefully you know.
It can be back to the range of 20 2500 to one.
100 sunsets.
At the same time I think a swabbing mentioned before this year alongside of them. The number of new paying clients will be more focusing on the quality of our new clean class will therefore, besides the client acquisition costs. We will also take into take taken into the consideration of asset clients.
As acquisition cost as well.
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So all of the rest of the elements of other agency.
Joe didn't change outs, what does it pencil.
Without even launching or ICL achieved sequential.
Susan.
Yeah as you mentioned, we officially launched in Australia.
The eighth which is about three months ago and since then we have to mostly be focusing on building the local team and exploring marketing strategies.
There's a lot of growth prospects in Australia, and we'll wait to see more data.
Thank you.
Thank you very much.
Thank you and next question comes from so you Yao from the ICC. Please ask your question.
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Since you mentioned at we observed to have acquired <unk> from other brokers in the market.
Monthly.
And accelerate the market share gains as the leading platform.
And we believe we will.
B the potential winner in the upcoming extra consolidation among the snap kitchen market.
Could you give us more color about the reason why so meaning our clients from our competitors choose to transfer there come to from two and what's the package itself, which was market share in bulk and the derivative in Hong Kong market.
Hong Kong Kilmarnock.
Thank you I will take these two questions I think number one you are right.
It may vary.
Encouraging progress in the in the Hong Kong market in the first quarter actually if we look at net asset inflows in the first quarter is actually the second best.
The quarters in terms of.
I think both in Hong Kong, we do think in our Hong Kong will face a very significant industry consolidations and there will be.
The leading players like portal will be definitely benefit from this trend.
Besides <unk>.
New client, we acquired I think in fourth quarter and going forward, we will also focusing on our existing clients.
Net inflows in particular in the first quarter, we do a lot of.
Practice marketing campaigns to attract our existing clients to migrate more assets to flow through from other brokers or even.
From the banks there.
Therefore, we can see more ethane inflows generation from our existing clients and secondly, we do think the industry dynamics in Hong Kong will become more of an idle gibbons out certain of our stocks.
Start to strategically exit.
From the Hong Kong market.
In terms of the portal offering definitely there will be a lot of new exciting.
For the pipelines.
In our.
In the second half of this year.
For the trading perspective, we are looking for even more ethics tradings starting from the second half of this year and also we will more pizza to certain institution investors demand.
And the Hong Kong trading in the U S treating.
That's triggering a sweat and for the for your second question in terms of the long term market share I think now on the cash equity side in Hong Kong.
Our market shares around the 2% to 3%.
Versus our peers.
In the Asia markets or.
In other regions, we do think there are still ample room.
To be.
To be consolidated and also for the revenues.
In the past several months our market shares in the Hong Kong future is in the range of 5% to 8%.
We are very confident we will get more market share in this particular niche market.
And also at the same time, the whole pie of the Heartland dilutive.
Have sufficient that we are very confident with that have a very meaningful upside.
Going forward as well for the option trading.
Hong Kong our market shares now is around the around the around the 10% I think we are we may close to the savings.
Yeah.
Gradually.
10% market share from a retail broker perspective has been already very high.
Good.
Thanks, Arthur That'd be helpful. Thank you.
Right. Thank you all very much for your questions. We have now reached the end of the question and answer session I'll now turn the call back to Daniel for closing remarks.
That concludes our call today on behalf of the due to management team I'd like to thank you for joining us. If you have any further questions. Please do not hesitate to contact me or any of our Investor Relations represented yes, Thank you and goodbye.
Thank you that does conclude our conference for today. Thank you for participating you may all disconnect.
[music].