Q2 2022 Futu Holdings Ltd Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Okay.
Hello, Ladies and gentlemen, welcome to the two holdings second quarter 2022 conference calls.
At this time all participants are in a listen only mode.
After managements prepared remarks, there will be a Q&A session today's conference call is being recorded.
Do you have any objections you may disconnect at this time.
I would now like to turn the conference I was at your host for today's conference call, Daniel <unk> Chief of staff and head of IR aptitude. Please go ahead Sir.
Thanks, operator, and thank you for joining us today to discuss our second quarter 2022 earnings results. Joining me on the call today are Mr leaf Li Chairman and Chief Executive Officer, Albert Chen Chief Financial Officer, and Robin Qi Senior Vice President.
As a reminder, today's call may include forward looking statements, which represent the company's belief regarding future events.
I don't nature are not certain and are outside of 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 leaf 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 approximately $1 4 million paying claims of three 9% year over year. Net addition was over 60000, bringing our first half paying client growth to 143000.
This is also the 10th consecutive quarter for which organic growth contributed over 50% of new paying clients.
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In the second quarter client acquisition was resilient in Hong Kong, where we launched targeted marketing campaigns around the green bond issuance in may and attracted allocation driven clients to subscribe to the green bond on our platform.
We contributed over one fifth of the overall greenbaum subscribers, which speak to our leading brand recognition and superior product experience.
In Hong Kong will continue to focus on clients over 30 years old as our current penetration rate among 30, plus Hong Kong residents is that a mere seven 5%.
To achieve that we haven't rolled out new marketing initiatives and launched new features including the light trading mode, which offers a more simplified and sleek trading interfaces and the regular savings plan for Hong Kong stocks, which caters to clients less interested in market timing.
In Singapore, we realized because of local users are more conservative jewelry market downturn and the flagship theory that industrial agitation activity to help users understand how to better navigate market turmoil and continue to diversify our product offering in wealth management.
We are encouraged to see that our quarterly client retention rate remains above 98%. Despite sharp market correction in April and May.
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Political lineup that decreased 14% year over year, and increased 12% quarter over quarter to 434 billion Hong Kong dollars.
The sequential increase was largely due to strong net inflow across different regions and to a lesser extent rebounded China technology names in June .
In Singapore, we continue to acquire higher quality clients.
Average asset balance at our newly acquired paying clients in Singapore exceeded 10000, Singapore dollars within three months.
This compares to about nine months for clients, we acquired last year.
Margin financing and securities lending balance increased 13% quarter over quarter of sentiments around technology stocks improved sequentially.
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Total trading volume with one three trillion, Hong Kong dollars or 2% quarter over quarter U S stock trading volume was 897 billion Hong Kong dollars constituting 67% of the total volume and up 6% quarter over quarter.
The sequential growth was mostly driven by higher turnover of leverage and inverse etfs amid heightened market volatility.
Dr Trading volume was 424 billion, Hong Kong dollars down 5% sequentially due to navigate market sentiment around China techniques in Hong Kong.
In the meantime, our market share in Hong Kong futures and options trading climbed to six 7% and 13, 5% respectively.
We launched multi leg options function for Hong Kong stocks by the end of June which enables our clients to formulate advanced options trading strategy to better manage risk and achieve investment target.
We believe this function will attract more sophisticated options traders to our platform.
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Total client assets in wealth management were 22 billion, Hong Kong dollars up 59% year over year, and 5% quarter over quarter after quarter and over 2000, and 200000 client 15% of our total paying client base health wealth management product.
Money market funds became increasingly attractive to our clients and the interest rate hike and to help our clients navigate a rising inflation environment. We also launched motto portfolio of global real return strategy in collaboration with Aberdeen.
In Singapore wealth management asset balance increased 377% quarter over quarter as we further expand our mutual fund offerings and launched new product features.
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As of quarter end, we have 276 IPO at nine of our clients as well with 519 Aesop clients.
48% and 97% year over year over 1000 companies are now using their enterprise accounting, our social community to communicate with retail investors.
And while the new additions in the second quarter, our BYD electronics and TNT lithium.
In the first two quarters, we acted at the underwriter for 12, Hong Kong Ipos tied for first place in terms of the number of Hong Kong IPO underwritten.
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We believe that our superior user experience remains our biggest competitive advantage and the first half of this year. We continued our relentless pursuit of product experience by releasing 99 versions of our mobile App and desktop clients and adding 3989, new features up 21% and 52%.
Over year.
Going forward, we intend to launch more customized features for clients of different regions.
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Next I'd like to invite our CFO Arthur to discuss our financial performance.
Thanks, Leland Danielle now please allow me to walk you through our financial performance in the second quarter or the numbers unless otherwise noted.
Total revenue was $1 7 billion up 11 percentage point of $1 6 billion in the second quarter of 2022 voltage Commission and handling charge income 1 billion, an increase of 30% year over year, 7% fueled by Q <unk>.
The year over year increase was mostly driven by a higher blended commission rates of seven seven basis points across six one basis point in the year ago quarter underpinned by greater contribution across the variety of trading the.
The Q over Q increase can be attributed to our commission per share pricing model or use stock trading as a decrease in the average share price of the stock our client.
Kind of resolving a higher blended commission rate.
Interest income was 620 <unk>.
Increase of 2% year over year, 8% Q over Q, the slight increase year over year was due to a higher.
Our cash deposits and the secured lending, which were largely offset by lower market financing income and IPO financing interest income.
<unk> increase was mostly due to higher interest income from cash deposit amid a rising rate environment.
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While 93 million down 45% year over year in the 6% Q over Q and year over year decrease was driven by a little IPO financial service income and underwriting fee income.
The pure material decrease was mainly due to lower currency exchange income and as the price public relationship service charge income.
Our total cost was 208 million a decrease of 25% to 179 in the second quarter of traffic growth.
Commission and handling charge expenses were $8 8 million down 40% year over year in the 10% Q O Q. Despite the year over year increase in brokerage Commission and handling charge income we.
This decline due to the cost savings from our global scale.
Security sales clearing migration.
Great service package with our U S clearinghouse and the lower ICL subsequent fees.
The decrease was mostly due to south Korea.
Interest expenses were <unk> 7 billion down 67% year over year in the aesthetics of the thank you for Q the year over year decrease was mostly due to lower expenses, our margin financing and the ico financing.
Crenshaw decline was driven by lower blended funding cost as we financed the increasing percentage of our market book with cash collateral generate power.
Security borrower.
Processing and service costs, while I have four minute up 74% year over year, and 1% Q O Q. The <unk> increase was primarily driven by higher proud of service fees to support overseas market expansion and the process a large number of concurrent trade.
As a result total gross profit was $1 5 billion, an increase of 19% from $1 3 billion in the second quarter of 2021 gross margin was 88% as compared to 82% in the second quarter of <unk> hundred one.
Operating expenses were 747 million up 12% year over year in the down 4% Q over Q.
To break at all R&D expenses were 292 million up 16, 9% year over year in the 3% Q over Q. The increase was mainly due to increasing R&D headcount as we continue to support new product offerings and invest in the U S self clearing capabilities and a customized products in different markets.
And the marketing expenses was 219 million decreased from 42% year over year, and a 24% Q over Q and year over year decrease was due to lower overall marketing and branding spending, especially on the international markets. The extent that census decline Q over Q as marketing spending $10 uses slower.
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G&A expenses were 211 million, 118% year over year and the license of thank you acute the increase was primarily due to increase ahead of call for general and administrative personnel.
A result, our net income increased by 100% year over year, and a 12% Q over Q2 to 639 million net interest margin expanded to 37% in the second quarter as compared to 34% in the same quarter last year, partially attributed to lower tax rate of 10%.
This lower tax rate was due to the tax credit benefit from our U S. Sales clearly, we maintain our long term tax rate guidance of 12% to 14%.
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That concludes our prepared remarks, we now like to open the call to questions. Operator. Please go ahead.
Thank you if you wish to ask a question you will need to press star one and one on your telephone.
Wait for your name to be announced.
Please standby, while we compile the Q&A roster.
We will take our first question.
Please standby.
And the question comes from Cindy Wang from China Renaissance. Please ask your question.
Just your line is China, Oh, yes. Thank you.
Over to you.
Now with this all of this comes from Joshua.
Cowen shallow Mcgill Q2 that will come from what you've been seeing like ourself with data and the data now.
Welcome Michael.
And Kathy Chu Goldman.
Goldman Sachs Your line.
With each new Davidson will come soon.
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Thanks Sheila.
Thank you Mr. Tom Thank you that's all.
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Okay. Thanks for taking my question, so I have two questions.
First question is.
Management fees from a breakdown for that.
A question Sharon.
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No question.
Chen Your line is open.
Please give us some color on that and the second question is related to your liking popular things actual to have Scott Mclean license in Singapore.
So to really have any schedule when we will finish that itself.
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Sure.
Helping out in terms of Singapore.
Thanks.
Thank you Angie.
Let me just offer the second question first.
First question in terms of the new paying clients break up to my colleague Ravi.
I think now the most part.
Because of our technology capabilities.
Our U S del Priore operations.
Migration has conducted very closely and so far we have already migrated over 80% of our U S security positions.
Our business partner for our oil.
Trailing costs and we do expect this exercise will be largely complete by the end of this year. After work we do think.
Youre right.
Self clearing capability in the couple of market definitely is our.
Our schedules.
He will be followed.
Subsequent to the completion of our USF self clearing migrations.
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Your next question comes from the line of Zalviso from Jefferies. Please ask your question.
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Now with Citibank.
Thanks management for taking my questions congratulations on the affiliate or without first and I have two questions.
Bill first.
We recorded 19, five five minute Noah Hong Kong dollars. So would you. Please provide more color about these items.
My second question is how should we expect.
The customer with no question.
Okay.
Thank you.
I also take your second question first I think Youre right.
But yesterday.
The volatility in the capital market definitely has some certain negative impact.
In terms of our client positions and you can see our blended <unk>.
That number is around $3500 in the second quarter, which is slightly higher than our previous guidance.
Up to now 25 to.
100 <unk>.
We do think that the current market turmoil may be continue in the near term or even in the <unk> in the whole second half.
Of this year. So therefore, we do think.
Our previous estimation may be a little bit too optimistic and we.
Currently expect.
Our cash numbers.
Half of this year may maintain at the current level falloff.
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Could you just repeat your answer to your first question.
Regarding the P&L items.
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The other mainland consists of.
I didn't realize the financial gain on the loss.
<unk> is that we provide certain margin financing to our clients, which trade Asia connect previously we do borrowing the iron offshore RMB to fund <unk>.
<unk> imbalance.
Given the current.
Our balance sheet situations actually we try to we have exchanged.
Exchange third hub positions form our Hong Kong dollar positions to the RMB position ourself due to the euro.
The very volatile on the hub all the movement in the in May and June we recorded unrealized loss, but this is a lot. This is actually on the cash items. If we look in the long run we do think it can be a chart up to two robust that.
Got it thank you.
Thank you we will take our next question.
And the question comes from Msas from Bank of America Securities. Please ask your question.
Uh-huh visibility to Q&A.
You may now end user it out now.
Thank you.
And Joel.
Thank you Sanjay.
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Jeremy.
So my question is regarding the financial impact.
Now clearly as well as the U S.
Mix impact through your financials.
Sure.
Let me also just two financial number question.
For the self clearing and as I mentioned before we have already migrated over.
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<unk> stock position to Alban you recall according to the current run rate. We can expect in the second half of this year are the self clearing capability, Ken in half 200 to $250 incremental revenues to our Lpns secondly regarding.
The interest rate climate.
Definitely.
We do think we are a beneficiary from the rate cycle.
Kevin.
We will get more interest income forecast idle cash just do some very simple calculation.
The rate hike do follow the consensus expectation nowadays.
Toward the end of this year the rate will be increased to say three.
<unk> also a 25 basis points in the second half of this year, we can generate additional $200 million to $250 million.
Interesting.
Most of that.
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Thank you.
Thank you we will take our next question.
And the question comes from Leon Qi from <unk>. Please ask your question.
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Jay.
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Hey, John .
Thank you for giving me the opportunity to ask the question and congrats on the very strong results I have two questions today.
<unk> today is regarding your new customer acquisition guidance.
I appreciate your very strong new customer acquisition in the second quarter, which reached 61 solvent.
And given you had also a very strong customer acquisition in the first quarter now.
Now your first half for new customer acquisition.
<unk> reached a well over 50% of your full year guidance of 200 K.
So I'm wondering if management I want to take any revisions to your full year target of 200 case on the second question is regarding your capital management.
We are very delighted to see that the free cash position of the company actually saw a sequential increase while the company is doing very decent buybacks.
Could management give us any color in terms of the comfortable level of the cash position you want to hold so that we have some crews to gauge that the amount of capital that you will be.
<unk> made available to return to shareholders. Thank you very much.
Yes.
Thank you Neil.
Our CEO Lee.
So your first question and I will take your second question afterwards.
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I think a lot of the whole quick end users have been not that she JV in civil towards intelligently.
So the overall market has recorded pretty poor performance year to date, and we expect this uncertainty to persist.
For a reasonable period of time in the future and we believe the current market is not that attractive to new clients and we think we will continue to focus more on the quality is there any clients the net asset inflow as our existing clients and the unit economics of the various regions, especially in such a sluggish market. So we now plan to keep our preview.
Guidance does adding 200000 net new paying clients and we may revisit the guidance later on this year. Thank.
Thank you.
Yes for the second question I think we are still in the early stage of full towards long term growth tragedy. So it is too early to tell.
Our capital ratios, we should focus instead to give a fixed number I think what we focus will be our long term growth potential, especially in the new markets and also for the deployment of our resources on the key technology operations going forward.
Definitely we will we will focusing more on the client on the OE side and the loan growth.
In the near future I do expect we do not have any say given the payout plans in the foreseeable future.
Okay. Thank you very much.
Thank you.
We will take our next question.
And the question comes from the line of Frank Zhang from Credit Suisse. Please ask your question.
Hey, guys great.
Great.
Yes.
So you're going to use a point of view.
Okay.
Blended fee rates.
Hi, Sheila.
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Okay.
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Let me quickly translate my two questions. The first one is blended fee rates as we see fee rate.
Continue to increase in the second quarter on a sequential basis can management provide more color on the drivers behind this and also well in.
To the second half and the second question is on the IPO market is Hong Kong IPO market slowly recovers do we see.
Covered.
Appeal.
Bridge loan interest income and subscription fee income and in terms of proportion.
What is the proportion of IPO related income as of total revenue. Thank you.
Sure I will take these two questions if.
As I mentioned in the opening remarks.
Youre right.
See you.
Blended basis, our commission rate continue to hike.
Year on year basis, and also appealed few basis, largely I think is more contributions from the derivative trading which now roughly accounts for 40% of our total trading trading Commission revenues, but we do not have any power.
Try to encourage people to trade policies corrosive staff.
Thank you.
The patient, yes, because of the market volatility in the U S market particular, the reason is we set our commission per share pricing model for our U S stock trading.
Understand that in the second quarter U S markets correct dropped significantly so are decreasing the average share of the stocks our client credit actually result in a higher blended commission rate. So this is more due to the due to the market volatilities.
For the second question the contribution from the IPO.
Business actually history, just a comfortable high single digit or low teen numbers of our total revenues. We do think it will we could lock.
Very meaningful pick up despite the number of the IPO in Hong Kong will start to a rebound since June I think it will still take some time.
The market, especially for the retail investors to build further momentum or to participate in any of these transactions.
Thank you.
Thank you I would now like to hand back to January one for closing remarks. Please go ahead.
That concludes our call today on behalf of <unk> management team I would 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 representative Thank you and goodbye.
This concludes today's conference call. Thank you for participating you may now disconnect.
Please standby.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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Okay.
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