Q2 2023 Futu Holdings Limited Earnings Call
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Hello, Ladies and gentlemen, welcome to switch your holdings second quarter 2023 conference calls.
At this time all participants are in a recently mode. After.
After managements prepared remarks, there will be a Q&A session. Today's conference call is being recorded if you have any objections you may disconnect. At this time I would now like to turn the conference, which you host for today's conference call Daniela Young Chief of staff to seal on the head of IR at switches.
Please go ahead Sir.
Thanks, operator, and thank you for joining us today to discuss our second quarter 2023 earnings results.
Joining me on the call today are Mr leaf Li Chairman and Chief Executive Officer, Arthur Chen Chief Financial Officer, and Robin sheet 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 items accompanied 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.
More information about the potential risks and uncertainties. Please refer to the company's filings with the SEC, including its annual report on form 20-F.
With that I'll 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 today I'm pleased to announce that we acquired over 57000 paying clients in the second quarter, bringing the total number of our paying clients to nearly one 6 million.
Robust organic growth across all overseas markets drove a 41% sequential acceleration in client acquisition.
In the second quarter, Hong Kong market contributed approximately one third of new paying clients.
Effective offline marketing campaign attracted older clients, who prefer in person instruction on how to open trading accounts and navigate our user interface.
And Singapore market, we also witnessed strong paying client growth on the back of U S equity market outperformance and the enticing Gill of money market funds.
In the U S. We brought them more call it more clients with higher quality as we iterate it on marketing channels and client incentives.
Despite fragile market sentiments, our group's quarterly paying client retention rate remained above 98%.
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Dominate without <unk> been there couldn't be more in the second quarter, we continued to rollout new products and features across markets.
To help clients better execute their trading strategy will allow us to bracket orders for U S and Hong Kong stock options and futures and algorithmic order for all clients in Hong Kong and Singapore.
And Singapore, and Australia, we now give clients access to certain U S stocks and Etfs 24 hours a day five days.
Thereby enhancing the accessibility of U S stock trading.
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Total client assets were 466 billion, Hong Kong dollars up 8% year over year, a flattish quarter over quarter.
Negative mark to market impact on clients, Hong Kong stock Holdings Dragon total client assets.
The net asset inflow in overseas markets remains robust, which offset the market impact.
Singapore market delivered strong asset growth during the second quarter, with a 21% and 12% quarter over quarter increase in total and average client assets respectively.
This was the fourth consecutive quarter, where the Singapore market achieved double digit sequential growth in total client assets.
Margin financing and securities lending balances declined marginally by one 4% sequentially.
Clients unwound their securities lending position.
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Hong Kong stock trading volume with 259 billion, Hong Kong dollars down 31% sequentially due to clients waning interest in China technology name given disappointing stock price performance.
Our stock trading volume was down by 18% quarter over quarter to 676 billion Hong Kong dollars as trading turnover of technology stocks and leverage an inverse etfs contracted.
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Total client assets in golf management, where 43 billion Hong Kong dollars.
At 99% year over year, and 17% quarter over quarter.
Sustained high yields in money market funds with a key driver behind this robust asset growth.
In Hong Kong, we continue to expense structure product offerings by Onboarding Salt Lake notes and call spread nodes to cater to the diversified risk return expectation of high net worth clients.
In Singapore over 18% of clients health wealth management positions as of quarter end up significantly from 2% in the year ago quarter.
And Singapore average client assets in wealth management more than doubled year over year.
In an effort to expand beyond retail wealth management, we launched instructed accounts in Singapore that allow fund managers to manage assets on their clients' behalf.
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We have 374, IPO distribution and IR clients as of quarter end up 36% year over here at all 31 companies listed in Hong Kong in the first half of 2023 20 of them have used to one or more of our enterprise product offerings and.
In the quarter, we acted as joint book runners of several high profile, Hong Kong Ipos, including those supply ESP and E gaming.
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Last but not least.
Im pleased to announce that our wholly owned Japan subsidiary numerous Securities Japan Corporation Limited is officially approved by the Japanese regulators to conduct this brokerage and wealth management business via our online platform.
The Japan market is characterized by its large and growing number of alkylate retail investors high penetration of online trading and increasing pension for U S stock trading and we are excited to tap into the <unk> market opportunity.
King <unk> associates, how about just almost how we gotcha next I'd like to invite our CFO Arthur to discuss our financial performance.
Firstly, Daniel before going through our financial performance I'd like to give you an update our latest 500 in the U S dollar share repurchase program announced on March <unk> 2008.
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At the end of the first half we have repurchased an aggregate of $11 million with approximately 316 million U S dollars total repurchased in open market transaction.
Constitute about 70% of the maximum purchase amount approved $1 a share repurchase program.
Now back to the financial performance in the second quarters. All the numbers mentioned below are in Hong Kong dollars.
Total revenues for the quarter was $2 5 billion up 42% from $1 7 billion in the second quarter of 2022.
Brokerage Commission and handling charge income was 150 53 million a decrease of 8% year over year and up 12% Q over Q. The Q on Q decrease was mainly due to the decline in the total trading volume, partially offset by the increase in the blended commission rate from eight eight basis points to nine nine basis points.
Interest income was $1 4 billion, an increase of 127% year over year, and 9% Q O Q. The increase was driven by higher interest income from cash deposits and higher securities lending income.
Other income was 127 million.
So the 7% year over year, and then maintain multiplex.
The <unk> increase was driven by higher distribution income other income maintained largely stable Q over Q since higher fund distributions service income and the trust fee were largely offset by lower currency exchange income underwriting fee income and the market information that they can.
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Total loss was 375 million an increase of 80% from 208 million in the second quarter of 2022.
Brokerage Commission and handling charge expenses was 55 million tons. So the 7% year over year in the 23% Q O Q. The decrease was attributable to lower trading volume and the cost savings from our U S sales clearing business.
Interest expenses were 220 billion up 729% year over year, and six 8% Q over Q. The increase was mainly driven by higher expenses associated with our security borrowing in the lending business higher funding cost from margin financing business also contribute to Q over Q increase.
Processing and servicing costs were 99 million, a 5% year over year and 13% of Q over Q. The increase was primarily due to higher system jewfish fee market information fee and the data transfer reservation fee also increased on a sequential basis.
As a result total gross profit was $2 1 billion, an increase of 37% from $1 5 million in the second quarter of 2022 gross margin was 85% as compared to 8% to 8% in the second quarter ultrasound altitude.
Operating expenses were 18% year over year, and 6% Q over Q2 852 minute.
R&D expenses were 363 million up 25% year over year in the 2% Q over Q. The increase was mainly due to increasing R&D headcount as we continue to upgrade our infrastructure support new product offerings and invest in product localization and international markets.
Selling and marketing expenses was 175, million% to 100% year over year and up 24% Q over Q.
Year over year decrease was mainly due to lower customer acquisition cost in the Q over Q increase was driven by accelerate client acquisition.
G&A expenses were 314 million up 49% year over year in the 2% Q over Q. The increase was mainly due to increase in head count for general and administrative personnel to support our international business expansion.
As a result, our total net income increased by 74% year over year and decreased by 6% Q over Q to one 1 billion net income margin expense of 45% from 37% in the same quarter last year, primarily due to the strong top line growth and the lower selling and marketing expenses.
That concludes our prepared remarks, we'd now like to open the call to questions. Operator. Please go ahead. Thank you.
Thank you <unk>.
Ask a question. Please press star one one on your telephone and wait for your name to be announced two we saw your question. Please press star one on one again.
So one on one if you wish to ask a question. Please standby, while we compile the Q&A roster.
Okay.
We will now take the first question.
One moment please.
From the line of Chi Young Kwon from M. S. Please go ahead.
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Let me briefly translate so the two question is regarding the trading volume and we're seeing the trading volume slipped further than the overall market in both Hong Kong and the U S. In the second quarter for <unk>. So just wondering what's the implication there and also.
We are seeing the.
Brokerage commission bouncing quite sharply in the second quarter and roughly what's the driving factors behind thank you.
Thank you <unk> I will take Silvio.
Silvio questions number one regarding the trading volume.
This January just in line with overall market conditions, particularly in the second quarter, we see.
Barry the market actually it's very challenging across the board, regardless in the U S or in Hong Kong.
What we observed.
Naturally the trading velocity from our clients.
<unk>, Inc. In the U S and also in Hong Kong.
Has decreased but the situation see seem to be temporary as we see the trading velocity a rebound quarter to date in the second quarter.
Then in terms of the trading commissions. The major reason as we elaborated several times before is more.
Related to the client trading behavior in the U S stock.
In the second quarter, we see more clients trading is low value of the stock in the U S market, which led to our lender implied.
The commission rate become higher both as the second quarter.
Thank you.
Thank you.
We will now take the next question.
From the line of Hugh Fun from C. ICC. Please go ahead.
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Larger and for taking my question Mr. <unk> from CIBC.
I have two questions here.
The first one is regarding the.
And does that mean breakdown by asset.
How much does Hong Kong and the U S stocks and a wealth management products and also the cash balance come supported total client asset balance and how much does Hong Kong and stock markets account for the total revenue activity.
My question is regarding the clients net asset inflow.
So I wonder, what's the asset inflow of clients in Hong Kong, Singapore, and also mainland China activity.
Thank you if I go I will answer your second question first and I will leave the first question to the in terms of the net asset inflows in the second quarter.
See very healthy rebound in there.
Second quarter versus the fourth quarter, given that we got some negative headline news.
In the second quarter, which caused certain clients uncomfortable.
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To breakdown among the different regions, Hong Kong actually contribute the most of the asset inflows, which followed by by Singapore.
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In the past few quarters at the breakdown of <unk> client assets has remained relatively stable with more client assets allocated to Hong Kong stocks that U S stocks.
And the proportion of wealth management assets actually continued to rise in the past couple of quarters.
And now accounting for about 10% by the end of <unk>, which more than doubled year over year and client cash balance accounted for a low teens.
Total client asset balance and to answer your question regarding the revenue breakdown between Hong Kong and U S docs.
Hong Kong Dot usually contribute at about 30% of the trading volume. So U S docs contribute at 70% of the traded volume and the blended commission rate for U S. Doc with slightly higher so about 75% of our trading Commission actually came from U S stock trading. Thank you.
Okay. Thank you very much.
Thank you.
Okay.
We will now take the next question.
From the line of Cindy Wang from China Renaissance. Please go ahead.
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<unk> from China Renaissance.
Two questions first question is related to the customer acquisition cost so we see them.
Second quarter, New Clos.
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Congrats to capped out.
Since approval from Japan government.
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Debate operation.
The mobile App in Japan. So can you talk about a little bit more color on what's the effect.
They have been.
Sure in terms of client feedback.
Thank you.
And is that going to help.
Help you to grow your new clients new.
All kinds of numbers.
In the second half of this year. Thank you.
Thank you Sandeep I will take your first question and I think LIBOR will be very happy to shift share more colors and his thoughts about the Japan market.
In the second quarter Atlanta Commission.
<unk> acquisition cost was around $3000 per client.
The CIC in Hong Kong was slightly higher than average while the wells average in the U S and they see therefore was lower than the average.
In the second quarter, we continue to optimize different channels, particularly some offline channel promotions to get a very good result.
So our efforts on the acquisition efficiency of target client, who has got being removed a reward and in the future we will further dynamic.
Our marketing strategy to improve the efficiency and also the.
Quality of customer acquisitions looking into the second half of this year.
Personally thinking about uncertainties still remains of course, a different market, but having said that our view on average.
CIC will be slightly more optimistic than all of you before therefore, we think the full year CACI costs may have a high single digit decrease compared with that of last year.
Thank you.
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We have been operating as a pure information and market data platform in the Japanese market for less than a year accumulating a lot of good feedback from Japanese users. We've also iterate and many community networking features based on market trends and user interests.
Our data show site numerous user community in Japan is highly highly active.
With the DAA, you to user ratio, averaging around 15% on trading days.
Indicating very high engagement and certainly significant growth potential.
Although trading function is currently not available on numerous Japan. We believe movie that has already brought unique value to Japanese users and in terms of product capabilities. Lu Moon now offers various functionality that we're absolutely among local platform such as visual displays the fund flows covering U S and Japanese.
Fundamental and technical analysis, and secondly, most securities brokers in Japan have a 15 to 20 minute delay in market data and real time quotes are provided with the cost.
However, numerous provides free real time quotes not only for Japanese and U S stocks, but also for foreign exchange options in futures data of global capital markets and Furthermore, Lulu is currently the only online platform in Japan offering an online user community. We've introduced numerous kols and conducted live broadcast.
For popular financial events in the social community, resulting in very high engagement and last but not least we have strong trading capabilities in terms of product categories or types of trading duration and various analytical tools, which can also be replicated in Japan in the near future and regarding our future development plans.
After we received the approval from the Japanese regulators, we are actively preparing and aim to launch the trading function in the fourth quarter. This year to provide Japanese investors with a comprehensive and smooth investment experience. Thank you.
Okay.
Thank you.
One moment please.
We will now take the next question.
Coming from the line of Leon Qi from Daiwa. Please go ahead.
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You don't see them on the sidewalk. Thanks for taking my questions. My first question.
Got in Japan market.
And I'll say it that all while competitive landscape.
Because banking in Japan.
The U S.
That's helpful.
The most.
More specifically.
The expectations.
The payback period.
And my second question at all of Hong Kong.
We are very glad to see that recently.
Opens.
Your line is beyond Hong.
Hong Kong.
Many many people are very excited about the product offerings I just wanted to ask about influence that so what kind of.
Operating matrix financial matrix.
<unk> from the offline experiences shops and.
Essentially all of them offline shops.
Okay.
Okay. Thank you thinking you are seeing in the first question can be answered by my colleagues Daniel and rigor.
Regarding our physical store in Hong Kong I think you know lithia, so very happy to share more colors about salt.
Yeah.
Alright, so regarding the competitive landscape in Japan, we believe it is a lot more benign than what we saw in the U S and.
We understand that the online securities brokerage industry in Japan is now dominated by a few players.
Top five internet brokers, including <unk> and Spi now accounts for the majority of the market share in terms of brokerage trading volume.
They have each accumulated over 1 million clients, among which rocket engine of Spi are the top two players. So overall, we think that the landscape is a lot more fragmented than what we saw in the U S and we believe that our current product offers a competitive advantage very significant one over the existing online broker and.
The Japanese market is huge and as we mentioned earlier growing rapidly and we are very confident to.
Paying a meaningful market share in Japan.
Overall I think since we haven't really started acquiring clients yet is probably too early to talk about customer acquisition cost and payback period.
Based on our initial analysis of the Japanese retail investors are generally a lot more affluent than the U S industrial and actually there are a lot more ways to monetize on trading in Japan, Let's take U S stock trading for example, and is now industry standards two charged zero commissions for U S stock trading in the U S.
While everyone's still charges.
All of the major online brokers and the Japan stellar charges pretty high Commission for our U S stock trading so we think.
Generally investors are wealthier and there are more monetization opportunities in Japan.
Thank you.
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Over 1000 people have visited our experience store and many of them are middle aged customers, who are not familiar with the online account opening process and previously it was difficult for us to reach the client group here, our online marketing channels.
These happen to be the target customer group that we want to further tap into.
So the experience store has helped to establish connection with these clients and has become an important channel to enhance the juice brand recognition among this group and.
In addition, the experience store in Hong Kong allows us to make face to face communications with <unk> users and have a better understanding our future product offerings and.
And according to the data we have collected so far the customer acquisition cost or experience stores, it's actually lower than our average Hong Kong market customer acquisition cost. So from a cap perspective experienced doors can actually help us reach previously underpenetrated client groups and further enhance brand image in Hong Kong at a lower cost.
From the perspective of operating costs, we believe that experienced store have really helped us with long term brand building and we also plan to use these stores as a venue for various offline investor educational activities events and corporate offices, which will further help save costs and if these experienced at this.
His experience store continues to record very good.
Progress in terms of client acquisition, which we expect to.
Have more experienced staff in stores in Hong Kong. Thank you.
Thank you.
I'd now like to turn the conference back over to Julien Daniel Yuan for closing remarks.
That concludes our call today on behalf of <unk> management team I would like to thank you for joining US Tonight. If you have any further questions. Please do not hesitate to contact me or any of our industrial relations representatives. Thank you and goodbye.
That does conclude our conference for today. Thank you for participating you may now disconnect.
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