Futu - Q1 2023

Transcript

Operator (participant)

Hello, ladies and gentlemen. Welcome to Futu Holdings first quarter 2023 earnings 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, sir.

Daniel Yuan (Chief of Staff to CEO and Head of Investor Relations)

Thanks, operator, and thank you for joining us today to discuss our first quarter 2023 earnings results. Joining me on the call today are Mr. Leaf Ly, 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 involving inherent risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from those containing 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. With that, I will now turn the call over to Leaf.

Leaf will make his comments in Chinese, and I will translate. Thank you all for joining today. As of quarter end, our paying clients surpassed 1.5 million, representing 15% growth year-over-year. Based on paying client growth in the first five months of the year, we expect to add 150,000 paying clients in 2023. In the first quarter, Hong Kong market contributed over 1/3 of paying client growth as client acquisition accelerated on the back of the rally of China technology names in January. We also witnessed resilient paying client growth in Singapore as we continue to strengthen our brand awareness through offline events and promoted demand for lower risk fund products through industrial education. We continue to broaden our trading product offerings and upgrade trading features in various markets.

We became the only broker in Hong Kong that allows clients to trade certain US stocks and ETFs 24 hours a day, 5 days a week, thereby enhancing the flexibility and accessibility of US stock trading. We also launched leveraged foreign exchange trading in Singapore, where clients can trade 36 major currency pairs on margin to take advantage of volatilities in the foreign exchange market. In the US, we've rolled out multi-leg option strategy orders for US stocks. This advanced trading function streamlines clients' trading experience and will attract more sophisticated options traders to our platform. Despite market weakness and headline regulatory news, our expanding product suite and premier user experience led to another quarter of over 98% paying clients retention rate.

Total client assets increased by 21% year-over-year and 12% quarter-over-quarter to HKD 466 billion due to higher mark-to-market value of client stock holdings and net asset inflow. In Singapore, total client assets and average client assets increased by 28% and 22% sequentially, attributable to solid net asset inflow across client cohorts and favorable U.S. equity market performance. In the first quarter, we attracted high quality clients in Singapore that continue to deposit funds into their trading accounts. For clients we acquired in January, for example, their average asset balance almost tripled by March.

Leaf Li (Chairman and CEO)

在 科 技 股 交 易 情 绪 提 升 的 催 化 下 ， 养 融 余 额 环 比 增 长 百 分 之 三 十 至 三 百 五 十 亿 港 币 。 本 季 度 总 交 易 量 为 一 点 二 万 亿 港 币 ， 环 比 增 长 百 分 之 十 二 。 许 多 美 国 科 技 股 在 本 季 度 表 现 出 色 ， 跑 赢 市 场 。I 板 块 交 易 量 的 增 长 推 动 美 股 交 易 量 环 比 增 长 百 分 之 二 十 三 ， 达 到 八 千 二 百 八 十 亿 港 币 。 由 于 投 资 者 情 绪 受 到 二 月 和 三 月 港 股 市 场 调 整 的 拖 累 ， 港 股 交 易 量 环 比 下 降 百 分 之 六 至 三 千 七 百 二 十 亿 港 币 。

Daniel Yuan (Chief of Staff to CEO and Head of Investor Relations)

Margin financing and securities lending balance was up by 30% sequentially to reach HKD 35 billion, driven by elevated activities around technology stocks. Total trading volume was HKD 1.2 trillion, up 12% quarter-over-quarter. U.S. stock trading volume grew by 23% sequentially to HKD 828 billion, mainly due to higher trading turnover of U.S. technology names, many of which handsomely outperformed the market during the quarter. Hong Kong stock trading volume was HKD 372 billion, down 6% sequentially as investor sentiments were dragged by the equity market correction in February and March.

Leaf Li (Chairman and CEO)

本 季 度 财 富 管 理 业 务 再 次 录 得 强 劲 的 增 长 ， 客 户 总 托 管 资 产 达 到 三 百 七 十 亿 港 币 ， 同 比 增 长 百 分 之 七 十 七 ， 环 比 增 长 百 分 之 十 七 。 在 新 加 坡 ， 货 币 基 金 持 续 受 到 客 户 青 睐 ， 推 动 总 客 户 资 产 环 比 增 长 百 分 之 六 十 九 。 期 间 ， 我 们 还 上 线 了 在 线 交 易 功 能 ， 扩 充 了 产 品 类 别 。 截 至 一 季 度 末 ， 财 富 管 理 产 品 在 新 加 坡 有 资 产 客 户 中 的 渗 透 率 从 去 年 同 期 的 百 分 之 一 提 升 至 百 分 之 十 五 。 在 香 港 ， 我 们 丰 富 了 结 构 化 票 据 的 种 类 ， 上 线 了 固 定 配 息 票 据 和 二 元 票 据 ， 在 高 净 值 客 户 中 深 受 欢 迎 。 截 至 季 度 末 ， 结 构 化 票 据 资 产 余 额 环 比 增 长 超 过 五 倍 。

Daniel Yuan (Chief of Staff to CEO and Head of Investor Relations)

Wealth management business recorded another quarter of strong growth, with total client assets climbing to HKD 37 billion, up 77% year-over-year and 17% quarter-over-quarter. In Singapore, elevated interest around money market funds led to a 69% sequential increase in total client assets. We also expanded our product offerings by introducing bond trading. As of quarter end, 15% of our paying clients in Singapore held wealth management products, up from 1% in the year ago quarter. In Hong Kong, we bolstered our structured product offering by launching Fixed Coupon Notes and Digital Notes. These products gained traction among our high net worth clients and structured product asset balance as a result grew by 5-fold quarter-over-quarter.

Leaf Li (Chairman and CEO)

截 至 一 季 度 末, 我 们 有 353 家 IPO 分 销 和 投 资 者 关 系 客 户, 以 及 662 家 ESOP 客 户, 同 比 分 别 增 长 37% 和 44%。 本 季 度, 我 们 作 为 联 席 牵 头 经 办 人, 参 与 了 多 宗 大 型 香 港 IPO, 包 括 Beauty Farm 和 YH Entertainment Group。 根 据 Wind Information 数 据 统 计 显 示, 在 第 一 季 度, 我 们 作 为 承 销 商 参 与 了 9 宗 香 港 IPO 项 目, 在 所 有 券 商 中 排 名 第 一。

Daniel Yuan (Chief of Staff to CEO and Head of Investor Relations)

We have 353 IPO distribution in IR clients as well as 662 ESOP clients as of quarter end. Up 37% and 44% year-over-year, respectively. We acted as jointly managers for several high-profile Hong Kong IPOs, including those of Beauty Farm Medical and Health Industry and YH Entertainment Group. In the first quarter, we underwrote nine Hong Kong IPOs and ranked first among all brokers, according to Wind.

Leaf Li (Chairman and CEO)

最 后 ， 我 很 高 兴 地 和 大 家 分 享 一 则 好 消 息. 富 途 旗 下 的 马 来 西 亚 全 资 子 公 司 已 经 获 得 马 来 西 亚 证 券 监 督 委 员 会 关 于 资 本 市 场 服 务 牌 照 的 原 则 性 批 准. 我 们 对 马 来 西 亚 蕴 含 的 巨 大 市 场 机 遇 充 满 期 待 ， 也 希 望 能 进 一 步 加 强 我 们 在 东 南 亚 市 场 的 影 响 力.

Daniel Yuan (Chief of Staff to CEO and Head of Investor Relations)

I am pleased to announce that our wholly owned Malaysia subsidiary has received the approval in principle for the Capital Markets and Services Licence from the Securities Commission Malaysia. We look forward to tapping into the immense market opportunity in Malaysia and further strengthening our presence in the Southeast Asian market.

Leaf Li (Chairman and CEO)

接 下 来 有 请 我 们 的 Chief Financial Officer Arthur 介 绍 我 们 的 财 务 表 现.

Daniel Yuan (Chief of Staff to CEO and Head of Investor Relations)

I'd like to invite our CFO, Arthur, to discuss our financial performance.

Arthur Chen (CFO)

Thanks, Leaf Li and Daniel Yuan. Please allow me to walk you through our financial performance in the fourth quarter. All numbers are in Hong Kong dollar unless otherwise noted. Total revenue was HKD 2.5 billion, up 52% from HKD 1.6 billion in the first quarter of 2022. Brokerage commission and handling charge income was HKD 1.1 billion, an increase of 12% year-over-year and 3% quarter-over-quarter. The year-over-year increase was mainly driven by a higher blended commission rate of 8.8 basis point. The quarter-over-quarter increase was primarily attributable to higher U.S. stock trading volumes. Interest income was HKD 1.3 billion, an increase of 125% year-over-year and 14% quarter-over-quarter.

The increase was driven by higher interest income from cash deposits and higher security lending income. Other income was $126 million, up 29% year-over-year and 34% quarter-over-quarter. The year-over-year and the quarter-over-quarter increase were both driven by higher funder distribution income. Our total cost was $291 million, increase of 28% from $228 million in the first quarter of 2022. Brokerage commission and handling charge expenses was $72 million, down 25% year-over-year and up 13% quarter-over-quarter. The expenses didn't move in tandem with our brokerage commission and handling charge income, mainly due to cost saving from our US self-clearing business. Interest expenses was $131 million, up 234% year-over-year and down 28% quarter-over-quarter.

The year-over-year increase and the quarter-over-quarter decrease were both driven by interest expenses associated with our securities lending business. Processing and the servicing cost was $88 million, down 5% year-over-year and 9% quarter-over-quarter. The year-over-year decrease was mainly due to lower product service fee as a result of system optimization. The quarter-over-quarter decrease was mainly due to lower market information fee and the data transmission fee. As a result, total gross profit was $2.2 billion, increase of 56% from $1.4 billion in the first quarter of 2022. Gross margin was 88% as compared to 86% in the first quarter of 2022. Operating expenses were up 7% year-over-year and down 2% quarter-over-quarter to $804 million.

R&D expenses was HKD 355 million, up 26% year-over-year, and 6% quarter-over-quarter. The increase was mainly due to increase in R&D headcount as we continue to support new product offering and invest in product localization in new international markets. Selling and the marketing expenses was HKD 141 million, down 51% year-over-year, and 80% quarter-over-quarter. Expenses declined due to decelerating client acquisition amid weak market sentiments. G&A expenses was HKD 308 million, up 73% year-over-year, and down 7% quarter-over-quarter. The rise was primarily due to the increase in headcount for general and administrative personnel to support our international business. The expenses declined quarter-over-quarter as we recorded one-off professional service fee for our proposed Hong Kong listing last quarter.

As a result, our net income increased by 108% year-over-year and 24% quarter-over-quarter to $1.2 billion. Net income margin expands to 48% from 35% in the same quarter last year, mainly due to strong revenue growth and the lower marketing spending. That concludes our prepared remarks. We'd now like to open the call to questions. Operator, please go ahead. Thank you.

Operator (participant)

Thank you. To ask a question, you'll need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, you can press star one and one again. Please stand by while we compile the Q&A roster. We'll now take our first question. Please stand by. Please stand by while we compile the queue. Once again, if you do have questions, it's star one and one. Thank you. We now have the first question ready. This is from the line of Chi Yao Huang from Morgan Stanley. Please go ahead.

Chiyao Huang (Equity Analyst)

Uh, 各 国 语 言 给 这 个 第 一 个 提 问 的 机 会 。 我 是 这 个 Morgan Stanley 分 析 师 Chi Yao。 呃 ， 我 有 两 个 问 题 。 第 一 个 问 题 是 关 于 这 个 海 外 咱 们 扩 张 的 一 个 一 些 ， 呃 ， 一 个 问 题 ， 呃 ， 因 为 我 们 看 到 季 度 复 读 在 新 加 坡 的 这 个 进 展 还 是 非 常 的 这 个 喜 人 ， 然 后 想 请 管 理 层 再 给 多 一 些 这 个 color， 在 比 方 说 在 美 国 ， 在 澳 大 利 亚 这 些 新 的 市 场 ， 咱 们 一 季 度 有 哪 些 新 的 一 些 斩 获 ， 然 后 接 下 来 的 一 些 策 略 会 有 什 么 一 些 新 的 打 法 。 然 后 就 是 刚 才 提 到 这 个 马 来 西 亚 的 这 个 牌 照 的 原 则 性 的 获 得 ， 我 们 下 一 步 在 马 来 西 亚 的 一 些 新 的 展 ， 展 业 的 一 些 计 划 ， 以 及 会 需 要 做 到 哪 些 这 个 ， 呃 ， 本 地 化 的 一 些 ， 呃 ， 操 作 ， 这 些 有 哪 些 新 的 一 些 看 法 向 管 理 层 分 享 一 下 。 呃 ， 第 二 个 问 题 是 关 于 这 个 ， 呃 ， 最 新 的 一 些 监 管 的 变 化 的 ， 我 们 看 到 在 主 要 是 考 虑 到 这 个 APP 在 国 内 下 架 之 后 ， 想 请 教 管 理 层 对 这 个 ， 呃 ， 存 量 客 户 会 ， 它 的 持 续 使 用 会 有 哪 些 影 响 ， 然 后 咱 们 会 在 哪 些 方 面 ， 呃 ， 想 办 法 去 更 好 地 服 务 这 些 存 量 的 国 内 用 户 。 呃 ， 同 时 呢 ， 在 这 个 监 ， 我 们 认 为 监 管 在 提 出 这 个 妥 善 化 解 存 量 这 个 提 法 并 没 有 发 生 变 化 的 情 况 下 ， 呃 ， 也 想 请 教 管 理 层 的 看 法 ， 就 是 说 未 来 而 言 ， 对 整 个 行 业 ， 可 能 国 内 整 个 客 户 的 盘 子 会 出 现 什 么 样 的 一 个 变 化 ， 以 及 同 业 的 竞 争 会 有 什 么 这 样 的 趋 势 。 呃 ， 我 简 单 翻 译 一 下 。So my first question is around the, uh, overseas expansion, and we have been seeing very encouraging progress in Singapore in the first, first quarter.

Wonder management could give more color on the U.S. and Australia market developments and also regarding the new entrants in Malaysia market, any plans and also localization in that market will be greatly appreciated. Second question is around the latest regulatory change with the removal of the Futu's app from the onshore app stores, and just wondering how would that impact the existing onshore users, their experience, and how is the company's plan to continue to provide high quality service to those existing clients? Maybe longer term, how does management think about the existing TAM, the TAM of existing onshore clients, with change going forward? Also how would the competition change going forward? Thank you.

Arthur Chen (CFO)

Thank you. I think the first question, Daniel and Robin can give you some colors about how of course achievements in Australia and in the U.S. Also you know our ambition plans for you know entering to Malaysia potentially in the second half of this year. For your second question about you know CSRC the mainland regulation implications. I think you know Leaf Li will give you some you know more colors in terms of the implications for our existing users. I can you know just supplement some you know initial datas in the past week, which we observe. Hopefully it will be helpful to you.

Robin Xu (SVP)

哎 你 好 ， 感 谢 提 问 。 呃 我 是 Robin， 然 后 我 来 先 回 答 一 下 马 来 西 亚 这 边 的 一 个 情 况 ， 然 后 呃 美 国 和 澳 洲 以 及 监 管 方 面 的 问 题 就 麻 烦 立 夫 来 回 答 一 下 。 谢 谢 。 那 马 来 西 亚 ， 呃 大 家 也 也 知 道 我 们 也 发 了 公 告 ， 就 是 我 们 刚 刚 拿 到 了 马 来 西 亚 监 管 对 于 我 们 证 券 牌 照 的 一 个 原 则 性 批 复 。 那 接 下 来 我 们 将 启 动 马 来 西 亚 市 场 的 整 个 产 业 的 一 个 投 入 和 本 地 化 团 队 的 一 个 搭 建 。 那 正 式 上 线 的 时 间 还 不 能 确 定 ， 那 我 们 这 边 也 会 征 得 整 个 这 个 ， 呃 马 来 西 亚 监 管 这 边 SC 和 马 来 西 亚 交 易 所 这 边 一 些 会 员 资 质 的 一 个 筹 备 。 我 那 等 我 们 有 了 一 些 更 更 多 的 进 展 之 后 ， 再 来 跟 大 家 做 具 体 的 汇 报 。 好 ， 谢 谢 。

Leaf Li (Chairman and CEO)

关 于 美 国 Q1 这 里 和 2Q 的 一 个 打 法 ， 我 来 讲 一 下 。 Q1 的 话 ， 我 们 美 国 的 获 客 速 度 是 有 所 放 缓 的 ， 主 要 是 由 于 我 们 在 梳 理 和 优 化 本 地 化 的 策 略 ， 也 是 希 望 把 工 作 重 心 放 到 提 升 客 户 质 量 上 。 我 们 Q1 开 始 支 持 美 股 组 合 期 权 的 功 能 ， 也 计 划 在 今 年 内 去 补 齐 bracket orders 等 的 高 级 功 能 ， 强 化 以 美 股 正 股 和 衍 生 品 为 核 心 的 产 品 能 力 。 后 续 我 们 也 会 通 过 专 项 的 投 教 内 容 和 站 内 外 活 动 去 提 升 这 里 的 产 品 认 知 度 ， 会 继 续 通 过 产 品 力 来 吸 引 客 户 ， 并 且 去 提 高 客 户 的 质 量 。 澳 洲 这 边 呢 ， 我 们 在 Q1 ， 我 们 到 澳 洲 的 获 客 数 量 是 有 所 提 升 的 。 经 过 过 去 1 年 多 市 场 实 践 的 积 累 ， 我 们 在 整 个 澳 洲 的 品 牌 知 名 度 也 得 到 了 一 个 不 断 的 增加强 。 通 过 市 场 调 研 跟 实 践 ， 我 们 目 前 对 澳 洲 的 目 标 客 群 的 定 位 也 更 加 清 晰 ， 对 处 于 不 同 交 易 阶 段 的 人 群 也 都 采 取 了 不 同 的 方 式 去 培 养 品 牌 认 知 和 获 客 。 在 澳 洲 接 下 来 我 们 会 也 是 会 继 续 去 补 齐 这 里 的 产 品 能 力 ， 去 提 升 对 客 户 需 求 的 洞 察 。 谢 谢 。

Daniel Yuan (Chief of Staff to CEO and Head of Investor Relations)

For Malaysia, we just received the approval in principle for the capital markets license from Securities Commission Malaysia. Next we'll start building local team and work on product and research and development. Far we haven't set a date for the official launch in Malaysia and we'll update the market when we have more information. In terms of the U.S. market, our growth in U.S. slowed down during the first quarter, primarily because we were mapping out and optimizing our localization strategy with a focus on improving client quality. We started to offer the U.S. multi-leg options trading function in the first quarter. We'll plan to launch advanced function and products such as bracket orders this year, while continuing to strengthen the core product capabilities around U.S. stocks and derivatives trading.

In the future, we'll also offer tailored industrial education, content and activities to enhance brand awareness, attract clients through superior product offerings and improved client quality. For the Australian market, in the first quarter, our client acquisition in Australia has increased, and after more than a year of brand building, our brand awareness in Australia continued to improve. Based on our market research and honing on our target client profile and have adopted different methods to cultivate brand awareness and acquire clients with different backgrounds. We'll plan to continue to launch product functions and develop deeper customer insights in Australia.

Leaf Li (Chairman and CEO)

对 关 于 那 个

呃 他 们 客 户 这 里 就 是 只 是 按 照 八 月 十 五 号 中 国 证 券 会 新 闻 发 言 人 在 呃 答 记 者 问 中 的 一 个 说 明 。 那 么 对 于 存 量 业 务 继 续 会 通 过 原 来 的 境 外 机 构 去 开 展 交 易 ， 那 么 对 存 量 投 资 者 的 交 易 实 际 上 是 啊 不 受 影 响 的 。 那 么 增 量 资 金 的 话 呢 ， 是 应 该 要 符 合 啊 相 关 的 国 家 外 汇 管 理 的 相 关 的 那 些 要 求 。 那 目 前 我 们 的 存 量 客 户 所 有 的 交 易 功 能 也 也 都 是 呃 正 常 的 。 另 外 就 是 呃 基 于 我 们 跟 监 管 的 沟 通 ， 我 们 理 解 在 香 港 的 其 他 券 商 已 经 有 证 券 账 户 的 大 陆 人 是 被 定 义 为 这 种 存 量 的 大 陆 客 户 ， 那 么 这 一 部 分 的 人 群 实 际 上 也 可 以 通 过 啊 在 富 途 开 户 ， 呃 无 论 是 入 金 也 好 ， 还 是 转 股 的 方 式 ， 都 是 呃 可 以 成 为 富 途 的 客 户 。 那 么 目 前 关 于 呃 APP 这 里 ， 那 么 实 际 上 啊 我 们 也 都 做 了 一 些 妥 善 的 安 排 ， 那 么 无 论 是 呃 升 级 还 是 呃 提 供 这 种 备 用 的 通 道 ， 那 么 服 务 也 都 能 得 到 保 障 。 目 前 所 有 的 存 量 客 户 对 于 APP 的 使 用 也 都 不 会 受 到 啊 多 的 影 响 。如 果 实 在 是 遇 到 了 问 题 ， 也 都 可 以 通 过 呃 ， 向 我 们 去 拨 打 客 户 热 线 ， 或 者 是 通 过 在 线 咨 询 的 方 式 去 得 到 我 们 的 帮 助 。 谢 谢 。

Daniel Yuan (Chief of Staff to CEO and Head of Investor Relations)

Based on CSRC's announcement on December 13th and the statements made on February 15th in response to a question from reporters, the existing clients trading will now be affected, and the existing clients can continue to trade through their existing offline financial institutions. These existing clients deposit more funds, it is allowed as long as they satisfy the requirements from SAFE. Currently for our existing clients, all of their trading activities and fund deposit activities are as usual. Besides, the regulators further clarified that existing clients are defined as clients that already have trading accounts with offshore brokers. For mainland Chinese clients that have opened trading accounts with other Hong Kong brokers, we are allowed to open accounts for them, and the fund deposits and stock transfer from other brokers to us are also allowed by the regulators.

In terms of our app upgrades, we have issued guidances on our website and our app to guide clients on how to timely upgrade the app to the latest version. We think our current services to the existing clients are not jeopardized. If they have questions during the upgrades, they can call our customer service line and ask questions through the app at any time, and we resolve client requests very timely. Thank you.

Arthur Chen (CFO)

Yes. Also I want to supplement, if I may, some, you know, initial observations since, you know, we published an announcement to remove our app from domestic Apple stores last Tuesday. You know, we are very delighted that it seems that our existing China clients population are very calm about this headline news. We do not see any meaningful, you know, abnormal churn rates and also the client net asset outflow in the past week.

Leaf Li (Chairman and CEO)

非 常 感 谢 冠 逸 先 生 。

Operator (participant)

Thank you. We'll now take our next question. Please stand by. This is from the line of Cindy Wang from China Renaissance. Please go ahead.

Cindy Wang (Director of Equity Research)

好 的， 谢 谢 Chiyao Huang 给 我 这 个 提 问 的 机 会， 也 恭 喜 Chiyao Huang 1st quarter 有 一 个 亮 眼 的 表 现。 我 这 边 有 2 个 问 题 想 请 教。 1st 个 是 关 于 commission rate。 我 们 看 到 commission rate 在 1st quarter 是 有 一 个 小 幅 的 下 滑， 环 比 的 下 滑。 想 知 道 说 这 主 要 的 一 个 比 较 大 的 影 响 因 素 是 因 为 美 股 的 一 个 股 票 的 一 个 rebound 所 造 成 的， 还 是 说 我 们 在 1st quarter 这 一 个 衍 生 性 商 品 的 一 个 交 易 的 这 个 量 是 比 较 少 的。 往 接 下 来 的 几 个 季 度 来 看 的 话， 我 们 要 怎 么 看 这 个 commission rate 的 一 个 趋 势？ 2nd 个 问 题 的 话 是 想 请 教， 就 是 说 我 们 有 看 到 新 闻 说， Futu 即 将 在 Hong Kong 开 一 个 线 下 门 市 的 一 个 体 验 店。 可 以 大概 帮 我 们 展 开 一 下， 说 这 个 主 要 的 功 能 会 是 为 何？ 未 来 投 资 人 是 不 是 可 以 透 过 这 个 线 下 门 市 来 做 开 户 的 一 个 动 作？ 我 很 快 的 翻 译 一 下。 Thanks for taking my questions. I have 2 questions.

First question is related to commission rate. The commission rate has slightly down sequentially. May I know what's the reason behind it? Is that because of the U.S. stock rebound impacted or the lower derivative trading in the first quarter? The second question is, we think we've seen the news about the Futu is going to open the first shop in Hong Kong. Could management let us know what kind of services this shop will provide? Could investors open trading accounts through the shop in the future? Thank you.

Arthur Chen (CFO)

Thank you, Cindy. I will take the first question and for the second question, Lee will answer it. In terms of commission rate, you are right. I think the, you know, fluctuation is due to the two reasons you both mentioned. Number one is primarily due to the U.S. stock trading pattern as we elaborate to the market several times. It is more due to the U.S. markets, you know, rebound, especially for these tech names, big tech names, in the first quarters. I think going forward, there we do not feel any, you know, strong competition in terms of pricing in Hong Kong and in other markets.

Of course, there will be some, you know, natural fluctuations from quarter-to-quarter perspective due to the U.S., due to the U.S. stock trading pattern. Also, in the second quarter so far, given the market is trading in a very narrow range bond, what we see, the clients activities on the derivative side, especially on the option and the future, start to be, you know, decreased on Q-on-Q level. This will have some implications in the second quarter, blended commissions. I hand over to Li for your second question.

Leaf Li (Chairman and CEO)

好 的 。 关 于 我 们 那 个 线 下 体 验 店 ， 其 实 我 们 已 经 是 筹 备 了 非 常 久 ， 可 能 是 这 段 时 间.

在 那 个 店 面 装 修 的 时 候 ， 就 是 Futu 的 一 些 这 种 品 牌 Logo 的 露 出 ， 引 起 了 大 家 的 关 注 。 我 们 去 做 线 下 体 验 店 ， 其 实 会 去 参 考 Apple 的 这 种 线 下 店 的 模 式 ， 就 是 让 大 家 能 够 更 全 方 面 地 去 感 知 到 我 们 的 产 品 ， 去 了 解 到 我 们 的 服 务 ， 包 括 也 希 望 我 们 能 够 更 加 生 动 具 体 地 去 面 对 面 地 去 回 答 一 些 问 题 。 也 是 为 了 ， 就 是 我 们 在 香 港 市 场 去 做 进 一 步 的 下 沉 ， 去 触 达 我 们 在 线 上 不 能 完 全 触 达 到 的 客 户 群 体 。 毕 竟 目 前 我 们 在 香 港 也 达 到 了 一 定 的 一 个 市 场 占 有 率 ， 我 们 也 希 望 通 过 这 种 线 下 体 验 店 的 模 式 ， 看 是 不 是 能 找 到 一 些 新 的 方 法 。 谢 谢 。

Daniel Yuan (Chief of Staff to CEO and Head of Investor Relations)

We actually have plans to open offline stores for a while and we have been preparing for it. I think recently we are going through renovations at the offline stores, so probably Logo attracted media attention. The reason we opened this offline store was actually drawing inspirations from Apple's offline store. I think the store will help our potential clients better experience our products and services, and also we can answer a lot of their questions face to face. As we continue to increase our client penetration in Hong Kong, I think the store will help us reach the clients that we are not able to reach through online channels and further expand our client acquisition channels. Thank you.

Operator (participant)

Thank you. We'll now take our next question. Please stand by. This is for the line of Zoe Zheng from Jefferies. Please go ahead.

Zoey Zong (Senior Associate)

哎 ， 呃 ， 感 谢 管 理 层 接 受 我 的 提 问 。 首 先 恭 喜 公 司 取 得 强 劲 的 业 绩 。 那 我 这 边 也 是 有 两 个 问 题 想 请 教 一 下 。 呃 ， 首 先 是 想 请 教 一 下 我 们 今 年 的 获 客 策 略 ， 呃 ， 因 为 看 到 一 季 度 的 营 销 费 用 和 获 客 成 本 环 比 都 是 有 下 降 的 ， 呃 ， 但 是 之 前 也 是 看 到 公 司 在 香 港 都 有 做 比 较 多 的 promotion， 呃 ， 那 Q2 以 及 全 年 或 者 再 往 后 看 ， 我 们 的 获 客 目 标 和 成 本 是 怎 样 的 一 个 趋 势 。 呃 ， 那 我 第 二 个 问 题 是 关 于 财 富 管 理 ， 呃 ， 想 请 教 一 下 我 们 财 富 管 理 业 务 未 来 的 发 展 战 略 ， 啊 ， 那 我 们 会 不 会 做 自 己 的 这 种 基 金 产 品 ， 还 是 说 我 们 的 定 位 还 是 做 distributor， 就 是 代 销 呢 ？ 好 ， 谢 谢 。 呃 ， 那 我 很 快 呃 ， 翻 译 一 下 。Uh, thanks management for taking my questions.

Congratulations on the solid results. I have two questions. First, could you please provide some color about our user acquisition strategy this year. We have noted that in Q1, our sales and marketing expenses and customer acquisition cost both declined sequentially. Recently we have seen companies more promotion in Hong Kong. Just wondering what our user acquisition target and cost in Q2 for year and the longer term. My second question is about our strategy for wealth management business. Will we launch our own fund product or do we just perform as a distributor? Thank you.

Arthur Chen (CFO)

Thank you Zoe, I will take both of your questions. I think number one in terms of the client acquisition, you can see in first quarter they imply the CAC is roughly in line with what we achieved in the fourth quarter of last year. I think going forward, despite you know, of course, you know second quarter should be, you know, even more challenging given the market condition, especially in Hong Kong, the index is trading in a very narrow range and there are no any meaningful IPO, you know, projects to the markets. It will have some negative implication to our client acquisition.

Having said that, I think, you know, overall our CAC target this year should be, you know, similar to compare with last year, particularly, you know, in Hong Kong, we will continue to double down our efforts in terms of the market share gains, not only just to the millennial, you know, generations, which we used to tap into, but with, as you know, Li and Robin mentioned before, we were also focusing on these, you know, some new populations, such as the female population and also the clients over the age of 40s. Number two, in terms of wealth management, I think you are right, in the foreseeable future, our role will still be the facilitator or distributor to our clients.

We do not have any, you know, confirmed time schedule or plan to, you know, package our products by using our own money. Thank you.

Zoey Zong (Senior Associate)

Thank you.

Operator (participant)

Thank you. We'll now take the next question. Please stand by. This is from the line of Frank Chen from Credit Suisse. Please go ahead.

Daniel Yuan (Chief of Staff to CEO and Head of Investor Relations)

感 谢 管 理 层 ， 我 有 两 个 问 题 。 第 一 个 问 题 是 关 于 利 息 收 入 的 ， 可 否 请 管 理 层 帮 我 们 进 一 步 拆 分 一 下 这 个 季 度 的 利 息 收 入 的 组 成 ， 其 中 多 少 是 存 款 带 来 的 ， 多 少 是 两 融 业 务 带 来 的 。 同 样 的 ， 可 否 帮 忙 拆 分 一 下 这 个 利 息 支 出 。 第 二 个 问 题 是 关 于 费 用 端 的 ， 对 于 这 个 operating expense 增 速 ， 公 司 有 什 么 目 标 ， 未 来 有 没 有 进 一 步 优 化 的 空 间 ？ 好 ， 我 来 简 单 翻 译 一 下 。

Frank Zheng (Equity Research Analyst)

Thank you management. This is Frank from Credit Suisse. I have two questions. The first one is on the breakdown of interest income in terms of return on deposit and return on the margin financing, unsecured lending business. Similarly, what are the sizes of each component of interest expenses? Secondly, how should we think about the growth rate of operating expenses going forward? Will the company take some measures to optimize the expenses? Thank you.

Arthur Chen (CFO)

Thank you, Frank. I will take both of your questions. In terms of the breakdown of the interest income, as you can imagine, we are key beneficiaries of the, you know, the US rate of cycle. In the past several quarters, you can see our interest income continue to increase sequentially, largely due to the Fed rate hike and also the liquidity situations in Hong Kong. You can imagine, the majority of our interest incomes come from the client's idle cash deposits nowadays. Having said that, you can see our margin balance, you know, also increase Q over Q in the first quarter. The absolute contribution from margin business also is very healthy.

In terms of your second question regarding the operating expenses, I think we have given some guidance to the market in last earning call, in the last earning call, earning call. We are looking for, you know, roughly, you know, 15%-20% headcount increase year-over-year, primarily to support our international market expansion. Most of these headcount increases will be on the R&D side. Of course, you know, there will be new overseas office opening, so there will be associate rental expenses and also the security activity colleagues be placed in these local markets.

I think going forward, definitely there will be more some, you know, rigorous expenses control, especially on the G&A expenses, which we can see, there are still some room to further enhance. I think, you know, in terms of the R&D, which we think, it is not not expensive, to some extent, we think it is an investment. We will continue to make a huge effort on the R&D, which will be our core advantage compared with our peers. Thank you.

Operator (participant)

Thank you. We'll now take the next question. Please stand by. This is from Leon Qi from Daiwa. Please go ahead.

Leon Qi (Regional Head of Asia Financials, FinTech, and HealthTech Research)

Hey.

Arthur Chen (CFO)

Thank you, Leo. Maybe I take your second question first. I leave you know, the first question to leave, to give you some more sharing, you know, the regulations for the existing clients. You can understand we are actually a very dedicated apprentice of Charles Schwab in the United States. I think a lot of, you know, a lot of lessons we learned from Schwab is that eventually want to be an asset aggregators for our users and provide, you know, like, provide their-

Or lifetime service, financial service down the road. So far we do not set any specific targets in terms of portions, you know, between the wealth management AUM versus our clients trading AUM. I think, you know, now the wealth management AUM roughly accounts to close to 10% of our total clients assets. Hopefully, I hope, you know, such proportion will continue to increase to 20%-30% in the next three to five years. Definitely, there will be a very long journey to go. As you can imagine, wealth management is a business which time is your friend. I think, you know, we are fully dedicated and fully commitment on, you know, these directions to rolling the snowball step by step. Now I will hand you over to Lee for your first question about the, about the mainland regulations.

Robin Xu (SVP)

好 的 ， 那 么 基 于 中 国 证 监 会 的 1230 公 告 精 神 和 今 年 2 月 15 号 答 记 者 问 当 中 的 一 个 表 述 ， 那 么 从 完 整 、 准 确 、 前 面 ， 全 面 的 角 度 来 理 解 的 话 ， 那 有 序 化 解 存 量 它 不 会 是 要 去 清 退 存 量 客 户 ， 而 是 在 服 务 好 存 量 客 户 基 础 上 的 自 然 化 解 。 那 么 由 于 投 资 客 户 和 投 资 账 户 会 因 为 出 现 投 资 损 失 ， 或 者 客 户 的 投 资 资 金 转 做 其 他 的 用 途 的 原 因 ， 这 里 会 存 在 ， 呃 ， 一 定 程 度 的 自 然 流 失 。 当 没 有 增 量 的 时 候 ， 那 么 随 着 时 间 的 推 移 ， 也 就 自 然 得 到 化 解 的 存 量 。 因 此 ， 我 们 认 为 做 好 存 量 客 户 的 服 务 保 障 ， 那 么 将 是 有 序 化 解 的 一 个 前 提 。 谢 谢 。

Daniel Yuan (Chief of Staff to CEO and Head of Investor Relations)

Based on the spirit of CSRC's announcement on December 30th and statements made on February 15th, resolving existing business is to let clients churn naturally while providing them with proper services, not turning them away. When clients would stop trading due to investment losses or when they need their funds for other purposes, which will lead to a natural churn for clients. Without new clients, the number of existing clients will reduce as time goes by. Thus, serving existing clients well is the prerequisite for orderly resolving existing clients. Thank you.

Leon Qi (Regional Head of Asia Financials, FinTech, and HealthTech Research)

Thanks a lot. 非 常 感 谢.

Operator (participant)

Thank you. We'll now take our next question. Please stand by. This is from Han Pu from CICC. Please go ahead.

Han Pu (Research Analyst)

呃 ， 管 理 层 好 ， 我 是 来 自 中 金 公 司 的 分 析 师 普 韩 。 感 谢 对 我 这 个 提 问 的 机 会 ， 也 恭 喜 公 司 取 得 这 个 优 异 的 ， 超 预 ， 超 预 期 的 优 异 业 绩 表 现 。 那 我 这 边 也 有 两 个 问 题 想 请 教 ， 主 要 是 关 于 海 外 市 场 的 。 第 一 个 还 是 想 进 一 步 请 教 一 下 马 来 西 亚 市 场 ， 那 想 请 问 管 理 层 就 为 什 么 会 选 择 马 来 西 亚 作 为 我 们 一 个 新 市 场 的 开 拓 ？ 那 我 们 是 否 有 更 多 关 于 这 个 市 场 的 一 些 调 研 了 解 到 的 ， 包 括 空 间 呐 ， 啊 ， 当 地 的 一 个 竞 争 业 态 ， 当 地 的 一 些 用 户 行 为 ， 产 品 供 给 的 一 些 基 本 情 况 可 以 与 我 们 分 享 。 那 第 二 个 问 题 的 话 是 关 于 新 加 坡 市 场 ， 我 们 看 到 新 加 坡 市 场 的 用 户 数 和 客 户 资 产 一 直 保 持 一 个 快 速 提 升 的 趋 势 。 那 想 请 问 当 前 新 加 坡 市 场 的 一 个 客 均 资 产 到 了 什 么 水 平 ？ 那 如 果 我 们 从 ， 啊 ，2021 年 第 一 季 度 的 第 一 批 客 户 的 cohort 来 看 ， 这 批 客 户 的 资 产 规 模 入 金 情 况 大 概 是 个 什 么 样 的 一 个 现 状 ？ 然 后 是 不 是 这 批 客 户 已 经 是 到 了 一 个 盈 亏 平 衡 开 始 盈 利 的 状 态 了 ？ 那 我 也 翻 译 一 下 我 这 边 的 两 个 问 题 。Uh, firstly, I want, uh, uh, could you please share, uh, more about why we choose Malaysia as our new market?

Do we have more information to share about the market room, the competitive landscape, the local investor behavior and the product supply in this market? Secondly, regarding the Singapore market, we see both the paying clients number and the average client asset keep growing quarter-over-quarter in the Singapore market. If we see the cohort of the first batch in the first quarter of 2021, like two years before, how was their average client asset and their follow-on fund inflow? Have they reached the breakeven point and they start to make the profit? Thank you.

Arthur Chen (CFO)

Okay, thank you. maybe my colleagues Robin can answer the first question about the competitive landscape and also our competitive advantage in Malaysia. I will take your second question. Robin, please.

Robin Xu (SVP)

好 的， 我 来 介 绍 一 下 马 来 西 亚 的 一 个 市 场 情 况。 我 们 也 做 了 一 些 调 研， 马 来 西 亚 的 人 口 大 概 是 33 million， 这 其 中 华 人 的 人 口 占 比 是 超 过 20%。 截 止 2022 年， 这 个 马 来 西 亚 股 票 的 活 跃 零 售 的 交 易 账 户 有 2.1 million， 美 股、 港 股、 新 加 坡 股 票 的 交 易 账 户 在 数 十 万 这 样 的 一 个 体 量， 且 有 一 个 不 断 上 升 的 趋 势。 马 来 西 亚 的 零 售 证 券 市 场 呈 现 年 轻 化 和 线 上 化 的 趋 势。2022 年 新 开 的 个 人 账 户 中 有 59% 是 来 自 23-45 岁 的 个 人 投 资 者， 所 以 这 个 市 场 规 模 还 是 在 我 们 看 来 还 是 OK 的。 另 外 就 是 马 来 西 亚 的 竞 争 格 局， 以 及 我 们 在 马 来 西 亚 市 场 的 一 个 优 势 吧。 马 来 西 亚 目 前 是 主 要 以 传 统 银 行 系 的 券 商 为 主， 线 上 的 券 商 起 步 较 晚， 但 由 于 零 售 投 资 者 有 整 体 年 轻 化 的 趋 势， 对 互 联 网 产 品 的 接 受 度 是 比 较 高 的。

Daniel Yuan (Chief of Staff to CEO and Head of Investor Relations)

The potential of online brokers is huge. The mainstream online brokers currently are Rakuten's iSPEED and iSPEED. These two internet brokers are still relatively small in scale, and their product capabilities are quite basic. There is also no in-depth updates on community operations and information. Compared to them, our product capabilities have stronger advantages, including a richer product lineup, higher-grade market orders, and basic and technical analysis tools. In addition, the trading fees for foreign stocks like US stocks are quite high in Malaysia, with each trade costing as much as $10-$25, and Futu can greatly reduce the trading costs of these offshore stocks. Finally, we have an active social community, rich investor education materials, and very strong internet operational capabilities, all of which we think can provide Malaysian investors with a very differentiated experience. Thank you.

Arthur Chen (CFO)

Thank you, Daniel and Robin. For your second question, we entered into Singapore markets roughly, you know, 2 years ago. The first batch of our client cohort assets increased by 2-3 times in the past 2 years. We are very encouraging to see the client cohort and also the client retention. Now for the first batch, 2 years, clients, which we acquired 2 years ago, they have already surpassed, you know, our client acquisition costs, which means contribute operating profits nowadays. I think, you know, we are extremely confident about our profitability and earning powers in the Singapore markets alone.

Not only just because of the, you know, our cohort will continue to enhance our output and the client assets, but more importantly, there will be a lot of initiative efforts to cutting the costs down. Not only the operating costs, but also the clearing costs, such as our U.S. stock trading, which we still, you know, deal with our Singapore-based clients through our external partners. In the second half of this year, we do have a plan. We do have a plan to gradually migrate our, you know, U.S. stock trading for Singapore clients from external partners to our internal U.S. clearing house.

This will also meaningfully decrease our cost relating to the U.S. stock trading, which will further enhance our profitability in Singapore. Thank you very much.

Han Pu (Research Analyst)

That's very helpful. Thank you very much.

Operator (participant)

Thank you. I will now hand the conference back to Yuan for some closing remarks.

Daniel Yuan (Chief of Staff to CEO and Head of Investor Relations)

That concludes our call today. On behalf of the Futu 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 representatives. Thank you and goodbye.

Operator (participant)

Thank you. This does conclude the conference for today. Thank you for participating. You may now disconnect.