Yahoo Finance Futu Holdings Limited (NASDAQ:FUTU) Q3 2023 Earnings Call Transcript
Futu Holdings Limited (NASDAQ:FUTU) Q3 2023 Earnings Call Transcript November 23, 2023
Futu Holdings Limited beats earnings expectations. Reported EPS is $8.33, expectations were $7.83.
Operator: Hello, ladies and gentlemen. Welcome to Futu Holdings Third Quarter 2023 Conference Call. At this time, all participants are in a listen-only mode. After management's 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 over to your host for today's conference call, Daniel Yuan, Chief of Staff to CEO and Head of IR at Futu. Please go ahead.
Daniel Yuan: Thanks, operator, and thank you for joining us today to discuss our third 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 Xu, 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 and are 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 Annual Report on Form 20-F. So, with that, I will now turn the call over to Leaf. Leaf will make his comments in Chinese, and I will translate.
Leaf Hua Li: [Foreign Language] Thank you all for joining today. In the third quarter, we acquired around 65,000 paying clients, a 12% sequential increase. Our total paying clients reached 1.65 million, up 14% year-over-year. Three quarters into 2023, we have exceeded our full-year guidance by acquiring over 163,000 paying clients. In the third quarter, Hong Kong market contributed over 40% of new paying clients. This acceleration in client acquisition was driven by the relief rally in the first half of the quarter and successful marketing around the government's Green Bond and Silver Bond issuances in the second half. These two bond offerings attracted allocation driven clients to our platform. In late July, we opened the first offline store in Hong Kong to raise brand awareness, assist clients with account opening, demonstrate advanced product features and address inquiries regarding our products and services.
Through this offline store, we managed to attract middle-aged and senior clients at a lower customer acquisition cost. In fact, clients aged 55 and above contributed over 50% of paying clients acquired through the offline store in the third quarter. In Singapore, we launched successful marketing campaigns to promote our cash management product, Cash Plus, thereby growing our paying clients by 35% year-over-year. We continue to observe improvement in client quality in the U.S. as net asset inflow of new paying clients trended higher. In September, we officially launched our brokerage business in Japan and Canada, now offering clients access to U.S. stock trading in Japan and U.S. and Canadian stock trading in Canada. During the early innings of market launch, we will remain focused on refining our account opening golden process, expanding trading products, and honing our brand positioning and marketing messages.
Despite various sentiments across global equity markets, we recorded another quarter of over 98% paying client retention rate. We continue to enrich trading product offerings across markets. In Singapore, we launched fractional shares for U.S. stocks and ETFs to enhance the accessibility for novice investors. We optimize our product for active options traders by introducing multileg options rollover strategy in Hong Kong and the U.S. This trading function gives options traders flexibility to roll contracts near expiration to a later date at different strike prices. Total client assets increased by 27% year-over-year to HKD468 billion. While the market pullback dragged the valuation of our clients' stock holdings, total client assets remained stable quarter-over-quarter due to robust net asset inflow.
Notably, total client assets in Singapore achieved double-digit sequential growth for the fifth consecutive quarter, which is partially driven by higher new asset quality. The average asset balance of new paying clients in Singapore was 20% higher than the prior quarter. Trading volume in the third quarter rebounded as clients traded more actively amidst heightened volatility. Total trading volume increased by 14% sequentially to HKD1.1 trillion, of which U.S. stock trading constituted around 75%. Higher trading turnover of the Magnificent Seven stocks led U.S. stock trading volume to grow by 19% quarter-over-quarter. Hong Kong stock trading volume increased by 5% sequentially, mainly driven by raising trading interest and leveraged and inverse ETFs. Margin financing and securities lending balance slipped 4% quarter-over-quarter as some clients unwound their bets against popular U.S. technology names.
Total client assets in wealth management grew to HKD52 billion as of quarter end, up a 100% year-over-year and 19% quarter-over-quarter. In the third quarter, client assets and bonds increased by 87% sequentially as U.S. treasury bills maintain high yields. In Hong Kong, structured notes were met with high demands from high-net worth clients as their risk appetite abated amid macro uncertainties. As a result, private fund balance grew by 52% quarter-over-quarter. In Singapore, total client assets in wealth management increase by fivefold year-over-year, driven by tripling of wealth management clients and higher average asset balance. In the third quarter, we further expanded our product portfolio in Singapore by introducing structured notes and SGS bonds.
We have 391 IPO distribution and IR clients as of quarter end, up 30% year-over-year. In third quarter, we acted as joint bookrunners of several high-profile Hong Kong IPOs, including those of TUHU Car, 4Paradigm, and KEEP. We also participated in the Hong Kong IPOs of all companies with market capitalization over HKD10 billion by the end of quarter. In the first three quarters, we underwrote 26 Hong Kong IPOs and ranked first among all Hong Kong brokers, according to Wind. Next, I'd like to invite our CFO, Arthur, to discuss our financial performance.
Arthur Chen: Thank you, Leaf and Daniel. Now, please allow me to walk you through our financial performance in the third quarter. All the numbers are in Hong Kong dollar, unless otherwise noted. Total revenue was HKD2.7 billion, up 36% from HKD1.9 billion in the third quarter of 2022. Brokerage commission and handling charge incomes was HKD1 billion, an increase of 5% year-over-year and 6% Q-over-Q. Higher contributions from derivative trading lift the blended commission rate from 8.8 basis point in the third quarter last year to 9.3 basis point this quarter. Interest income was HKD1.5 billion, an increase of 71% year-over-year and 7% Q-over-Q. The sequential increase was mainly driven by higher interest rate on clients' cash deposits, partially offset by lower cash balance.
Other income was HKD137 million, up 28% year-over-year and 8% Q-over-Q. The increase was largely due to higher fund distribution income. Our total costs were HKD437 million, an increase of 101% from HKD218 million in the third quarter of 2022. Brokerage commission and handling charge expenses were HKD63 million, down 24% year-over-year and 14% Q-over-Q. The expenses didn't move in tandem with brokerage commission and handling charge income, mainly due to cost saving from our U.S. self-clearing business. Interest expenses were HKD289 million, up 546% year-over-year and 31% Q-over-Q. The year-over-year and the Q-over-Q increase were both driven by higher interest expenses associated with our security lending business. Processing and the servicing costs were HKD86 million, down 6% year-over-year and 13% Q-over-Q.
The year-over-year decrease was mainly due to saving from cloud service fee as a result of system optimization and the Q-over-Q decrease was mainly due to lower system usage fee. As a result, total gross profit was HKD2.2 billion, an increase of 28% from HKD1.7 billion in the third quarter of 2022. Gross margin was 84% as compared with 89% in the third quarter of 2022. Operating expenses was up 17% year-over-year and a 5% Q-over-Q to HKD893 million. R&D expenses was HKD360 million, up 15% year-over-year and a down marginally by 1% Q-over-Q. The year-over-year increase was mainly due to higher R&D headcount as we continue to upgrade our infrastructure, roll out new products and features, and customize products for international markets. Selling and marketing expenses was HKD212 million, down 10% year-over-year and up 21% Q-over-Q.
The expenses declined year-over-year due to lower customer acquisition costs and a Q-over-Q increase was primarily driven by accelerated paying client growth. General and administrative expenses were HKD322 million, up 52% year-over-year and 3% Q-over-Q. The rise was primarily due to an increase in headcount for general and administrative personnel to support our international markets. As a result, our net income increased by 45% year-over-year, and it declined by 3% Q-over-Q to HKD1.1 billion. Net income margin expanded to 41% from 39% in the same quarter last year, mainly due to strong revenue growth and the lower selling and marketing expenses. That concludes our prepared remarks. We now like to open the call to questions. Operator, please go ahead.
Operator: [Operator Instructions] The first question comes from the line of Leon Qi with Daiwa. Please go ahead.
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