Yahoo Finance Futu Holdings Limited (NASDAQ:FUTU) Q4 2023 Earnings Call Transcript
Futu Holdings Limited (NASDAQ:FUTU) Q4 2023 Earnings Call Transcript March 14, 2024
Futu Holdings Limited isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Hello, ladies and gentlemen. Welcome to Futu Holdings Fourth Quarter and Full Year 2023 Earnings Conference Call. [Operator Instructions]. 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, sir.
Daniel Yuan: Thanks, operator, and thank you all for joining us today to discuss our fourth-quarter and full-year 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 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 statement. For more information about the potential risks and uncertainties, please refer to the company's filings with the SEC, including its annual report.
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: Thank you all for joining our earnings call today. In the fourth quarter, we added over 59,000 paying clients. Our total paying clients as of year-end reached over $1.7 million, representing 15% growth year over year and exceeding our guidance. This was due to level four for tissue valves goes up by volume versus on total volume of business. Client acquisition in Singapore has sustained high growth into the fourth quarter. Money market funds continue to garner significant client interest amid high interest rate and market volatility. In December, we became the first and only distributor of Fullerton Fund Management Singapore-dollar-denominated money market funds, the only T+0 Singapore dollar money market funds for retail investors in Singapore.
We continue to gain user mindshare in Japan with our rich market information, comprehensive market data, and interactive social community. In the fourth quarter, the average daily downloads of moomoo app in Japan ranked top three among all brokers and surpassed those of Nomura and Matsui Securities according to data.ai. With the recording remarkable gains and hitting new highs, client acquisition in Japan also showed a notable sequential increase in the first quarter. We continue to streamline the account opening process to reduce leakage in the conversion funnel and focused on R&D for key investment products. We launched an growth account in December that will soon roll out Japan equities trading. Our clients in Hong Kong and Singapore will also have access to Japan stock trading in the second quarter.
Client acquisition in Hong Kong slowed down due to sluggish market sentiments. We have rebounded in the first quarter along with the recovery of the Hong Kong stock market. In the US, we continue to prioritize client quality over quantity with the average asset balance of new paying clients in their first quarter of onboarding, increasing by over 30% compared to the last quarter. In Australia, we focused on cultivating brand equity and adding new products, including cash management. On February 26, we launched brokerage business in Malaysia and gained significant traction. Over 30,000 clients flocked to our platform within one week of the official launch, representing the fastest growth in any of our international markets. We managed to generate high brand awareness in Malaysia from the outset thanks to our rapid share gain in Singapore over the past three years.
We observed robust paying client growth across all markets this year. In fact, we attracted more paying clients and net asset inflows in the first two months this year than the entire fourth quarter. Given the strong momentum year to date, we are guiding for a 350,000 net new paying clients in 2024. Total client assets increased by 16% year over year and 4% quarter over quarter to HKD486 billion. The sequential increase was largely due to robust net asset inflow across all regions and the market appreciation of our clients' US stockholding. In Singapore, total client assets and average client assets posted sequential increase of 25% and 17%, respectively. Average client assets was over SGD17,000 due to strong inflows across cohorts. As we continue to build brand equity, moomoo gained traction among high-net-worth clients in Singapore.
As of quarter end, margin financing and securities lending balance increased marginally by 2% quarter over quarter. While we saw an uptick in security funding balance for US stocks margin financing balance declined as clients unwound their positions. Total trading volume was HKD957 billion, down 12% year over year and quarter over quarter. In the fourth quarter, Hong Kong and US stock trading volume were down 13% and 12% sequentially. Weak sentiments around Hong Kong equities and lower turnover in US tech stocks dragged total trading volume. Our share gains in the derivatives market and Hong Kong was a bright spot. Hong Kong futures and options trading at 8.5% and 14.7% market share in the fourth quarter respectively. Total client assets in wealth management increased by 82% year over year and 11% quarter over quarter to HKD58 billion, accounting for 12% of total client assets.
Clients increased their allocation in money market funds and US treasury bills to harvest high yields. Total bond holdings as a result increased by over 60% quarter over quarter. We continue to enrich our structured products by onboarding the accumulator nodes, a product that allow clients to sell their stock positions out of premium. Our enterprise business had 414 IPO distribution and IR clients, up 24% year over year. In the fourth quarter, we acted as joint book runners for several high-profile Hong Kong IPOs, including those of J&T Express and UBTech. We underwrote 37 Hong Kong IPOs in 2023 and ranked first among all 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. Before going through our financial performance, I'd like to give you an update on our latest share repurchase program announced on March 11, 2022. As of December 31, 2023, the expiration date of the program, we have repurchased an aggregate of $11 billion ADS with approximately USD365 million total repurchase amount in open market transactions. We have put in place a new share repurchase program, which approved and authorized us to repurchase up to USD500 million of ADS before December 31, 2025. Now please allow me to walk you through our financial performance. All numbers Hong Kong dollars unless otherwise noted. Total revenue was $2.4 billion, up 4% from $2.3 billion in the fourth quarter of 2022.
We ended 2023 with full-year revenue growing 31% to $10 billion. Brokerage commission and handling charge income were $904 million, a decrease of 14% year over year and 10% QoQ. The decrease was mainly driven by lower trading volumes. Interest income was $1.3 billion, up 17% year over year and down 11% QoQ. The year-over-year increase was mainly driven by higher interest income from client cash deposits due to higher benchmark interest rate and higher margin financing income due to an increase in daily average margin balance. The Q-over-Q decrease was mostly driven by the lower interest income from clients' cash deposits due to a decrease in daily average client cash balance. Other income was $137 million, up 46% year over year and a largely flat QoQ.
The year-over-year increase was primary attribute to higher fund distribution income, partially offset by lower enterprise public relationship service income and underwriting fee income. Our total cost of $433 million, an increase of 27% from $342 million in the fourth quarter of 2022. Brokerage commission and handling charge expenses were $59 million, down 8% year over year and 6% Q-over-Q. The decrease was roughly in line with our decrease of our brokerage commission and handling charge income, partially offset by the cost of migrating our SGX equities to our self-clearing system. Interest expenses were $271 million, up 49% year-over-year and down 6% Q-over-Q. The year-over-year increase was driven by higher interest expenses associated with our securities borrowing and lending business and the higher margin financing interest expenses.
The Q-over-Q decrease was mostly due to lower interest expenses associated with our security borrowing and the lending business, partially offset by higher margin financing interest expenses. Processing and servicing costs was $104 million, up 7% year over year and 21% Q-over-Q. The increase was largely due to higher product service fee for new markets and higher system usage fees. As a result, our total gross profit was $1.9 billion, largely flat year over year. Gross margin was 81.7% as compared to 85% in the fourth quarter of 2022. Operating expenses was up 12% year over year and 3% Q-over-Q, so $916 million. R&D expenses were $363 million, up 9% year over year and 1% Q-over-Q. The year-over-year increase was mainly due to increasing R&D headcount as we continue to support new product offerings in international markets.
Selling and marketing expenses was $182 million, up 19% year over year and down 14% Q-over-Q. The year-over-year increase was due to a 41% year-over-year increase in net new paying clients, partially offset by lower customer acquisition costs. And the Q-over-Q decrease was due to fewer net new clients and lower customer acquisition costs. G&A expenses were $370 million, up 12% year-over-year and 15% Q-over-Q. The increase was primary due to a increase in headcount for general and administrative personnel, partially offset by lower professional service fees. As a result, income from operations decreased 9% year over year and 22% Q-over-Q to $1 billion. Operating margin declined to 43.1% from 49.1% in the fourth quarter of 2022, mostly due to operating deleverage.
Our net income decreased by 9% year over year and 20% Q-over-Q to $876 million. Net income margin shrank to 36.9% in the fourth quarter as compared to 42% in the same quarter last year. Among our international business, Singapore was the first to achieve breakeven on a quarterly basis even with apportioned cost from headquarter. As client assets continued to grow, we believe the unit economics in Singapore will maintain an upward trajectory. That concludes our prepared remarks. We'd now like to open the call to questions. Operator, please go ahead. Thank you.
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