Futu Holdings Ltd. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Funded Accounts Growth: Hong Kong market led new funded accounts amid China equities' risk-on mood; U.S. saw growth due to platform enhancements; Malaysia had fastest sequential growth in new funded accounts; Japan saw strong sequential growth in new funded accounts.
• AI Initiatives: Launched Futubull AI, a smart investment assistant with 90% satisfaction rate; plan to roll out to other international markets in Q2.
• Product Launches: New desktop version of Futubull; U.S. fractional shares trading in Japan; U.S. options trading launched in April.
• Client Assets and Trading Volume: Strong client asset growth driven by record net asset inflow; trading volume up due to market activity.
• Wealth Management: Growth in wealth management assets driven by money market funds and structured notes; expanded structured product lineup in Hong Kong and Singapore; on-boarded equity funds in Malaysia; rolled out U.S. dollar-denominated money market funds in Japan.
• IPOs: Participation in key IPOs boosting client engagement, stock trading volume, and asset inflow.

Segment Performance

• Funded Accounts: Added approximately 262,000 new funded accounts in Q1 2025, up 48% year-over-year and 22% quarter-over-quarter. Total funded accounts at quarter end stood at 2.7 million, a 42% increase from a year ago and an 11% rise sequentially. Tracking well against 2025 guidance of 800,000 net new funded accounts.
• Client Assets: Total client assets reached HKD 830 billion, marking a 60% increase year-over-year and a 12% increase quarter-over-quarter. Margin financing and securities lending balance closed at HKD 50.3 billion, largely stable from prior quarter.
• Trading Volume: Total trading volume reached HKD 3.22 trillion in Q1, up 140% year-over-year and 11% quarter-over-quarter. U.S. equity trading rose 8% sequentially to HKD 2.25 trillion; Hong Kong equity trading advanced 21% quarter-over-quarter to HKD 916 billion.
• Wealth Management: Wealth management plan assets reached HKD 139.2 billion as of quarter end, up 118% year-over-year and 26% quarter-over-quarter; 29% of funded accounts hold wealth management products.
• IPOs: 498 IPO distribution and IR clients, up 16% year-over-year. Participated in landmark Hong Kong listings, with 70,000 clients contributing over HKD 1 trillion in subscription amount for Misha Group IPO.

Guidance

• Net New Funded Accounts: Tracking well against 2025 guidance of 800,000 net new funded accounts, with a third of annual target achieved in Q1.
• Second Quarter Outlook: New funded accounts likely to see double-digit sequential decrease but strong client acquisition momentum continues; total trading volume expected to further increase; net asset inflow to stay high; expect further sequential lift to total client assets due to market rebound since late April.

Risks

• Market Volatility: Impact on crypto trading enthusiasm; HIBOR fluctuations affecting net interest income.
• Regulatory Risks: Concerns over taxation on mainland China clients' overseas investment income; crypto regulatory landscape; VATP license approval process by Hong Kong SFC.
• Competitive Risks: Competition in Hong Kong market; potential impact of new entrants on market share.

Q: Overall Hong Kong and U.S. stock market fluctuated greatly in April and May. Could you give us some color on the trading velocity, trading volume, and the margin financing security lending balance on your platform so far in the second quarter?

A: New funded accounts in Q2 likely to see double-digit sequential decrease, but strong client acquisition momentum continues; total trading volume expected to further increase; net asset inflow to stay high.

Q: Recently we see Futubull and the moomoo launch membership program. Could you let us know what the business model looks like for this program and how many paying clients have already subscribed these services?

A: Membership program catered to wealth management products clients, proportion of paying clients still small.

Q: Could you please maybe just give us a little bit more color about the timeline of your crypto trading business and also the implication of the passage of the Hong Kong stable coin spill recently to your company?

A: Crypto prices pulled back in Q1 but rebounded in May; launched crypto deposit and paper trading functions in Hong Kong; plan to launch crypto withdrawal functions soon; participated in stablecoin sandbox.

Q: Recently, HIBOR dropped sharply. How will this impact your net interest income? Meanwhile, with HIBOR falling, are we seeing changes in client behavior such as increased fund deposits and more allocations to money market file equity asset or more active trading?

A: Sensitivity analysis shows rate cuts impact pre-tax profit; interest income revenues continue to grow Q-on-Q due to idle cash balance; HIBOR decline may trigger more trading activities.

Q: My first question is on the client asset inflows that it's hitting a record high this quarter. And so just wondering the mix of the inflows by different regions, especially from a [indiscernible] China region contribution and what's the outlook for the full year. And second question is about is there any quantitative metrics that we can look at to measure the [indiscernible] engagement satisfaction and the clients thickness arising from the AI tools that we have launched and what could potentially -- could be done more in this space.

A: Asset inflows strong across seven markets; Hong Kong and Singapore major contributors; Futubull AI has good user feedback, helps with engagement and net asset inflow.

Q: This is You Fan from CICC, and I have two questions here. The first one is about the customer acquisition cost of the CAC. We see it decline much this culture. So what's the reason behind? And do you have any new guidance for the future CAC? And the second question is that we see we have announced to entry the New Zealand market. Would you please share more color on this market?

A: CAC declined due to market tailwinds and brand equity; maintain full-year CAC guidance but will revisit; Futubull is number 2 broker in Australia, expanding to New Zealand with manageable incremental costs.

Q: This is Peter Zhang from JP Morgan. I have two questions. First is about the effective tax rate. We notice that effective tax rate pick up in first quarter to 18%. Wondering what's the reason behind and what's the medium to long term effective tax rate level for Futu going forward. Second question is about the blended commission theory. We noticed that in first quarter blended commission theory stabilize and pick up slightly. We wish to understand the reason behind and what will be the trend going forward?

A: Effective tax rate up due to overseas profits and OECD Pillar Two; expected to maintain 17%-18% in future; blended commission rate up due to product mix change, expected to stabilize with new products like crypto trading.

Q: This is Alan from Citibank. My first question is on Hong Kong markets. Futu previously has a market share target of about 40% in Hong Kong, that basically implies about 1 million paying customers in Hong Kong. So, judging from our 1Q numbers, our paying customer numbers is already approaching close to around [indiscernible]. And given the pace of our new paying customer acquisition in Hong Kong is so fast, I think our long-term goal of market share of 40% in Hong Kong is probably within reach within the next couple of quarters. So against this backdrop, wondering if management could share your updated view on the Hong Kong market, especially considering that there's recent changes in the competitive landscapes with potential competition for [indiscernible]. If you look beyond the 40% market share, how much additional headroom do we see to further increase market share in Hong Kong? The second question is on interest income. We see that idle cash balance has grown very notably during the first quarter. Wondering if management could help us break down the interest income. How much of that is coming from idle cash, and how much of that is from margin finances, [indiscernible] lending, etc.

A: Idle cash related income accounts for 35%-40% of total interest income; Hong Kong market has huge growth runway; not apple-to-apple comparison with fund account numbers; product innovation and brand build provide barrier to entry.

Q: Thanks management for taking my questions and congratulations on your solid results. I have two questions. Firstly, I have a follow-up question on Futubull AI. Management mentioned that more AI products will be launched in overseas markets in Q2. So, wondering what's your AI product strategies and investment scale. And my second question is about VATP. Could you please share an update on the business development with your VATP license?

A: VATP license still in phase two with SFC; AI strategy includes internal efficiency and client-facing features; AI used in customer service, account opening, and to develop new products like algo trading.