Futu - Earnings Call - Q1 2025

Transcript

Operator (participant)

Hello, ladies and gentlemen. Welcome to Futu Holdings' First Quarter 2025 earnings conference call. At this time, all participants are in listen-only mode. After management prepared remarks, there will be a question-and-answer 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, Head of Strategy and IR at Futu. Please go ahead.

Daniel Yuan (Chief of Staff to CEO and Head of Strategy and IR)

Thanks, Operator. Thank you for joining us today to discuss our First Quarter 2025 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 risk 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. 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 (Chairman and CEO)

[Foreign language]

Daniel Yuan (Chief of Staff to CEO and Head of Strategy and IR)

Thank you all for joining our earnings call today. We kicked off 2025 with strong momentum, adding approximately 262,000 new funded accounts in the first quarter, up 48% year-over-year and 22% quarter-over-quarter. By quarter end, total funded accounts stood at 2.7 million, a 42% increase from a year ago and an 11% rise sequentially. With a third of our annual target already in the bag, we are tracking well against our guidance of 800,000 net new funded accounts in 2025.

Leaf Hua Li (Chairman and CEO)

[Foreign language]

Daniel Yuan (Chief of Staff to CEO and Head of Strategy and IR)

For the second quarter in a row, Hong Kong market led in new funded accounts amid a risk-on mood for China equities. An active IPO calendar also helped acquire new clients while reactivating previously dormant ones. We believe that brokers with strong brand equity, seamless user experience, and superior execution capabilities are best positioned to convert market tailwinds into sustained growth. Funded account growth in the U.S. picked up pace as we enhanced the platform experience for active traders. Our take charge of your trading campaign in New York City also boosted brand visibility and deepened engagement with retail investors.

Leaf Hua Li (Chairman and CEO)

[Foreign language]

Daniel Yuan (Chief of Staff to CEO and Head of Strategy and IR)

Malaysia delivered the fastest sequential growth in new funded accounts across all seven markets, fueled by effective marketing campaigns and our seamless Malaysian IPO subscription experience. Looking ahead, we still see significant runway for market share expansion and remain committed to product localization and brand investment. In Japan, new funded accounts saw strong sequential growth and reached a historic high, reaffirming our position as the preferred platform for U.S. equity trading among Japanese retail investors.

Leaf Hua Li (Chairman and CEO)

[Foreign language]

Daniel Yuan (Chief of Staff to CEO and Head of Strategy and IR)

Among the products we shipped in the first quarter, the highlight was Futubull AI, a smart investment assistant trained on Futu's proprietary financial data and investor community insights. This integrated solution combines AI-powered search, Q&A, and customer support, offering context-aware responses tailored to retail investors. Since launch, it has received overwhelmingly positive feedback, with a satisfaction rate of around 90%, and has demonstrated significantly higher accuracy and professionalism in answering investment-related questions than general-purpose models. We plan to roll out similar AI offerings to other international markets in the second quarter to empower investors globally.

Leaf Hua Li (Chairman and CEO)

[Foreign language]

Daniel Yuan (Chief of Staff to CEO and Head of Strategy and IR)

In the first quarter, we also launched a brand new desktop version of Futubull, built on a new framework compatible with Windows, Mac OS, and Linux. This next-generation version features intuitive drag-and-drop tools for building quantitative strategies and enumerates multi-leg option strategies that reflect clients' views on the securities, bringing institutional-grade functionalities in a more user-friendly manner. In Japan, we introduced U.S. fractional shares trading in February to enhance accessibility, followed by the April launch of U.S. options trading to help clients better capture market movements.

Leaf Hua Li (Chairman and CEO)

[Foreign language]

Daniel Yuan (Chief of Staff to CEO and Head of Strategy and IR)

Total client assets reached HKD 830 billion, marking a 60% increase year-over-year and a 12% increase quarter-over-quarter. The growth was primarily driven by record net asset inflow. The rally of Hong Kong equities, led by large-cap tech names, drove significant asset inflow. Total client assets in Singapore rose 11% sequentially, marking the 11th consecutive quarter of double-digit growth, thanks to robust inflow into U.S. equities and wealth management products. In Canada and Australia, average client assets increased for the fifth consecutive quarter, underscoring improving client quality and growing brand trust. Margin financing and securities lending balance closed the quarter at HKD 50 billion, largely stable from the prior quarter, as clients delivered in March amid market pullback.

Leaf Hua Li (Chairman and CEO)

[Foreign language]

Daniel Yuan (Chief of Staff to CEO and Head of Strategy and IR)

Total trading volume reached HKD 3.22 trillion in the first quarter, up 140% year-over-year and 11% quarter-over-quarter. U.S. equity trading rose 8% sequentially to HKD 2.25 trillion, supported by bottom fishing of semiconductor and technology stocks. Trading volume in Hong Kong equities advanced 21% quarter-over-quarter to HKD 916 billion, lifted by a resurgence in investor sentiment amid the DeepSeek-induced rally. In the U.S., we saw double-digit sequential growth in both the number of options traders and the number of options contracts traded, with the latter reaching its historic high.

Leaf Hua Li (Chairman and CEO)

[Foreign language]

Daniel Yuan (Chief of Staff to CEO and Head of Strategy and IR)

Wealth management client assets reached HKD 139.2 billion as of quarter end, up 118% year-over-year and 26% quarter-over-quarter. 29% of funded accounts held wealth management products, a further sequential increase. A big part of the inflow was driven by money market funds, as clients flocked to safe haven assets amid market volatility. At the same time, we saw rising allocations into bond funds and strong demand for structured notes, especially in Singapore. In Hong Kong and Singapore, we expanded our structured product lineup with FX-linked notes. In Malaysia, we onboarded equity funds, while in Japan, we rolled out U.S. dollar-denominated money market funds to better serve clients' cash management needs.

Leaf Hua Li (Chairman and CEO)

[Foreign language]

Daniel Yuan (Chief of Staff to CEO and Head of Strategy and IR)

As of quarter end, we had 498 IPO distribution and IR clients, up 16% year-over-year. In the first quarter, we participated in several landmark Hong Kong listings as joint lead manager, including those of BoxGroup and Guoming Holdings, where we acted as the exclusive online broker for IPO distribution. Notably, in the highly anticipated Measure Group IPO, 70,000 clients contributed to over HKD 1 trillion in subscription amount, putting us first among all brokers in both total subscription amount and number of subscribers. We observed that these high-profile IPOs typically lead to higher client engagement, stock trading volume, and asset inflow.

Leaf Hua Li (Chairman and CEO)

[Foreign language]

Daniel Yuan (Chief of Staff to CEO and Head of Strategy and IR)

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

Arthur Chen (CFO)

Thank you, Leaf and Daniel. Please allow me to walk you through our financial performance in the first quarter. All the numbers are in HKD unless otherwise noted. Total revenue was HKD 4.7 billion, up 81% from HKD 2.6 billion in the first quarter of 2024. Brokerage commission and handling charge income was HKD 2.3 billion, an increase of 113% year-over-year and 12% Q over Q. The year-over-year increase was mainly driven by higher trading volume, partially offset by the decline in blended commission rate. The year-over-year decline in blended commission rate was mainly driven by changes in product mix and a higher average order size for Hong Kong stock trading. The Q over Q increase was mainly driven by the sequential growth in trading volume.

Interest income was HKD 2.1 billion, up 53% year-over-year and 2% Q over Q. The year-over-year increase was driven by high interest income from security borrowing and the lending business, margin financing, and the bank deposits. The Q over Q increase was driven by higher margin financing income, as well as higher interest income from security borrowing and the lending business, partially offset by lower interest income from bank deposits due to lower interest rates on clients' cash deposits. Other income was HKD 314 million, up 101% year-over-year and down 11% Q over Q. The year-over-year increase was primarily attributable to higher fund distribution service income and the currency exchange income. Our total cost was HKD 749 million, an increase of 59% from HKD 417 million in the first quarter of 2024.

Brokerage commission and handling charge expenses were HKD 144 million, up 138% year-over-year and 28% Q over Q. Both the year-over-year and the Q over Q increase were roughly in line with the movement of our brokerage commission and handling charge income. Interest expenses were HKD 469 million, up 50% year-over-year and down 9% Q over Q. The year-over-year increase was driven by higher interest expenses associated with our security borrowing and the lending business and higher margin financing interest expenses. The Q over Q decrease was mainly due to lower margin financing interest expenses and the lower interest expenses associated with our security borrowing and the lending business. Processing and servicing costs were HKD 136 million, up 44% and down 10% Q over Q.

The year-over-year increase was largely due to higher market information and data fee for in-house market data coverage, and the Q over Q decline was mainly driven by lower system usage fee as well as lower market information and data fees. As a result, our total gross profit was HKD 3.9 billion, an increase of 86% from HKD 2.1 billion in the first quarter of 2024. Gross margin was 84% as compared to 81.9% in the first quarter of 2024. Operating expenses were up 36% year-over-year and down 12% Q over Q to HKD 1.3 billion. R&D expenses were HKD 386 million, up 15% year-over-year and down 3% Q over Q. The year-over-year increase was primarily driven by investing in AI capabilities and the related technology initiatives. The Q over Q decline was mainly due to the sequential decrease in R&D headcount.

Selling and marketing expenses were HKD 459 million, up 57% year-over-year and down 1% Q over Q. The year-over-year increase was roughly in line with the growth of our new funded accounts. The Q over Q decrease was mainly due to lower client acquisition costs, partially offset by the sequential increase in new funded accounts. G&A expenses were HKD 415 million, up 38% year-over-year and down 28% Q over Q. The year-over-year increase was primarily due to an increase in the general administrative headcount to support overseas market development, and the Q over Q decrease was mainly due to bonus accrual for general administrative personnel in the previous quarter. As a result, income from operations increased 125% year-over-year and 21% Q over Q to HKD 2.7 billion.

Operating margin increased to 57.2% from 46% in the first quarter of 2024, mostly due to strong top-line growth and operating leverage. Our net income increased by 107% year-over-year and 15% Q over Q to HKD 2.1 billion. Net income margin expanded to 45.6% in the first quarter as compared to 39.9% in the same quarter last year. Our effective tax rate for the quarter was 18.6%. That concludes our prepared remarks. We now like to open the call to questions. Operator, please go ahead.

Thank you.

Operator (participant)

Thank you. As a reminder, if you'd like to ask a question, please press star one one and wait for your name to be announced. If you'd like to cancel your request, please press star one one again. One moment for the first question. First question comes from Cindy Wang of China Renaissance. Please go ahead.

Cindy Wang (Director of Equity Research)

[Foreign language] Thanks for taking my call. I have two questions here. First, the 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 second quarter? Second question is, recently we see Futubull and 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 to these services? In the long run, what do you expect the benefits could bring to the future? Thank you.

Daniel Yuan (Chief of Staff to CEO and Head of Strategy and IR)

[Foreign language]

[Foreign language]

The new funded accounts in the second quarter, we'll probably see double-digit sequential decrease sequentially, mostly due to a very high base in the first quarter, but overall we maintain very strong client acquisition momentum in the second quarter, and we are very confident to hit our 800,000 new paying clients guidance for 2025. With very big market volatility, clients continue to trade very actively, and based on the current run rate, we expect a further sequential increase in total trading volume. Clients also deposit a lot of assets into our platform according to date, based on the run rate. Net asset inflow will stay at a very high level, similar to what we saw in the first quarter, coupled with a mark to market positive impact since the second half of April due to the market rebound.

We expect a further sequential lift to our total client assets. Thank you.

Arthur Chen (CFO)

[Foreign language]

In terms of the membership programs we've launched recently, it is more catered to our wealth management products clients, particularly for these clients with huge assets or higher trading velocity, or even have some particular risk appetite into some alternative wealth management products. So we will start to layer different clients in terms of their risk appetite, their client assets, and the different product needs. Given we just launched the programs recently, the penetration and the absolute number of these membership clients versus our total clients, the proportion is still very small. Thank you.

Operator (participant)

Thank you for the questions. One moment for the next question. Our next question comes from Charles Zhou from UBS. Please go ahead.

Charles Zhou (Managing Director)

[Foreign language] So first of all, congratulations to the management. I think it's a very strong set of results and beat the consensus and also our estimate. I have two questions. The first one, could you please maybe just give us a little bit more colors about the timeline of your Crypto trading business and also the implication of the passage of the Hong Kong stable coins bill recently to your company? The second question is about, can we talk about the customer retention and also the client AUM following the rising recent concern over the taxation on mainland China clients' overseas investment income? Thank you.

Daniel Yuan (Chief of Staff to CEO and Head of Strategy and IR)

[Foreign language]

[Foreign language] The Crypto prices experienced some pullback since first quarter. That affected the enthusiasm of the Crypto investors on our platform, but the monthly trading volume and the number of Crypto traders stayed at a pretty high level. Since May, the Crypto prices rebounded, and we've seen investors quickly picked up interest in Crypto trading, and we also saw a rebound in daily trading volume. We'll continue to build Crypto-related product capabilities. Recently, we launched the Crypto deposit functionalities in Hong Kong, which made it easier for our clients to seamlessly deposit the Crypto onto Futu's platform and make it easy to switch between different asset classes. After we launched this function, we got very good feedback from the Web3 community and also very positive feedback from our clients, and we plan to launch Crypto withdrawal functions very soon.

We also launched the Crypto paper trading function in Hong Kong, and we're the first regulated Crypto platform to allow for paper trading, which really helped the newbie investors to familiarize themselves with the trading rules and the trading procedures, especially during market volatility. A couple of days ago, we launched Crypto trading on a grayscale basis in most of the states in the United States, and we now support over 30 mainstream cryptocurrency trading. We'll closely monitor our clients' trading behaviors to iterate on our product, and we plan to increase the number of cryptocurrencies in the near future. From a long-term perspective, we are very bullish about virtual assets as an asset class, and for Futu, the take rate for Crypto trading is higher than cash equities.

We believe that as the regulatory landscape and the regulatory guidelines become more clear, there will be more cryptocurrency allowed and more functions allowed, which will bring Futu more ways to monetize from this asset class. We believe that whether it is from an AUM or a revenue perspective, Crypto has so much potential, and we are still in the very, very early innings. In terms of stablecoins, we are aware of the relevant regulations being released recently, and Airstar Bank, invested by Futu, participates in the stablecoin sandbox and is exploring ways to do stablecoin custody. Thank you.

Leaf Hua Li (Chairman and CEO)

[Foreign language]

Daniel Yuan (Chief of Staff to CEO and Head of Strategy and IR)

Now many countries in the world have participated in this common reporting system, and for the countries that participate in the common reporting system, the CRS rules apply to all of the licensed financial institutions, whether it's banks or insurance companies or brokers, and there is a very clear set of rules that is executed consistently across different financial intermediaries. Although the United States is not part of CRS, it has its own FATCA system, which establishes this tax information exchange mechanism with most of the mainstream countries in the world. As all of the other licensed brokers in Hong Kong, without the explicit request from the Hong Kong SFC, and if it's not complying with the relevant laws and regulations of Hong Kong, Futu Securities will not disclose client information and client data to any third parties.

We have noticed that on the internet, there have been some rumors about Futu disclosing client data and client trading information to third parties, and we want to make sure that everyone knows that these are very baseless rumors. We always adhere to regulatory requirements, and we want our clients to also correctly understand and interpret these laws and regulations, so we have actually done a lot of education in this area as well. So far, we have not seen this leading to meaningful client attrition and asset outflow. Thank you.

Operator (participant)

Thank you for the questions. One moment for the next question. Our next question comes from the line of Emma Xu of BofA Securities. Please go ahead.

Emma Xu (Greater China Banks and FinTech Research Analyst)

[Foreign language] So congratulations on another quarter of outstanding performance. I have a question regarding HIBOR. Recently, the 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 allocation to money market fund, equity asset, or more active trading? Thank you.

Arthur Chen (CFO)

[Foreign language] in our last earning call, actually we provide a sensitivity analysis, assume every 25 basis rate cut, our pretax monthly pretax profit will be down HKD 8 million-HKD 10 million roughly. But since the Fed rate cut last year by 50 basis points, we see the overall interest income revenues in the first quarters continue to grow on a Q on Q basis, which is mainly because the average size of our client idle cash balance largely offsets the rate cut implications. At the same time as you mentioned, the recent declines in HIBORs, which trigger more clients' trading activities in terms of velocity and consequently we will benefit from the trading commissions. On the other hand, we think the recent sharp declines by HIBOR may be just temporary, partially due to certain mega IPOs in Hong Kong.

Whether it will be sustained in such a low level, it is still wait to see. Thank you.

Operator (participant)

Thank you for the questions. One moment for the next question. Our next question comes from the line of Yang Guang from Morgan Stanley. Please go ahead.

Yang Guang (Executive Director and Head of Asia Analytical Modeling)

[Foreign language] My first question is on the client asset inflows as it's hitting a record high this quarter, and just wondering the mix of the inflows by different regions, especially from non-Greater China region contribution, and what's the outlook for the full year? My second question is about is there any quantitative metrics that we can look at to measure the adoptions or engagement satisfaction and client stickiness arising from the AI tools that we have launched, and what could potentially be done more in this space? Thank you.

Arthur Chen (CFO)

[Foreign language] Then in terms of the first quarter net asset inflows, actually we see a very strong inflow momentum across our seven different markets. The overall asset inflow by the group increased over 50% Q on Q basis, and also Leaf mentioned in the opening remarks, it is our record high in a single quarter numbers. Then in terms of the geographic breakdowns, Hong Kong and Singapore still are the majority contributor markets for the asset inflows, and going forward we are constructively positive on the overall on the full year asset inflow situation. Thank you.

Daniel Yuan (Chief of Staff to CEO and Head of Strategy and IR)

[Foreign language] We have launched the Futubull AI functions for about two months now, so it's not been that long. We're still analyzing more data, but based on the preliminary numbers we have seen, our users have very good feedback of our Futubull AI function, and that also leads to more engagement and activity on our platform. We have also packaged our AI functions into our membership programs, so there's a limited number of free questions you could ask to AI, and that depends on the tier of your membership, and that is based on the client assets and the trading behavior on our platform, which means that the AI function has helped with net asset inflow and the trading velocity.

I think that's why we're trying to roll out AI functions to more international markets based on the initial traction we have seen of our Hong Kong clients. Thank you.

Operator (participant)

Thank you for the questions. One moment for the next question. Next question comes from Yu Fan of China International Capital Corporation. Please go ahead.

Yu Fan (Analyst)

[Foreign language] This is Yuyu Fan from CICC, and I have two questions to her. The first one is about the customer acquisition cost of the CAC; we see it decline much this quarter, so what's the reason behind? And do you have any new guidance for the future CAC? The second question is that we see we have announced to enter the new New Zealand market; would you please share more color on this market?

Arthur Chen (CFO)

[Foreign language] In terms of the CAC in the first quarters, the average CAC we reached around the in the first quarter is around HKD 1,800, which is relatively lower than our objectives in the beginning of this year, partially due to very strong market tailwinds we got, regardless in China, the China assets rerating, very strong IPO markets in Hong Kong, and volatilities in the U.S.. In these trading windows, our marketing colleagues timely catch these windows, and thanks to our brand equities influence as well, we got a very good result. Going forward, we do expect we will continue to set client growth as our first priority. At the same time, we will further emphasize our brand building deployments in terms of the fundings.

In the long run, we think the further incomes of the brand equity will let us become more resilient in different trading investment cycles. The investment on this brand equity, the effect in the near term, it is very difficult to predict, not to mention the overall market environments and the macro environment still include a lot of uncertainties. From the prudence angles, we will maintain our full year guidance on CAC unchanged, but we will revisit this assumption in the coming quarters. Thank you.

Leaf Hua Li (Chairman and CEO)

[Foreign language]

Daniel Yuan (Chief of Staff to CEO and Head of Strategy and IR)

Futu is now the number two broker in Australia in terms of DAU, and we've accumulated a lot of brand equity, and we feel like expanding into New Zealand was a natural extension. We've also seen that Australian stocks and U.S. stocks are the two most popular asset classes for Kiwi investors, and we have already built very strong product capabilities for these two products in Australia. Expanding to New Zealand will not incur much investments in terms of licensings or personnel or R&D, and we can largely replicate the IT infrastructure and the marketing resources and the brand equity we've built in Australia. The incremental cost will be quite manageable, and we think the New Zealand business will present very favorable ROIs. Thank you.

Operator (participant)

Thank you for the question.

Yu Fan (Analyst)

Thank you.

Operator (participant)

One moment for the next question. The next question comes from Peter Chang from J.P. Morgan. Please go ahead.

Peter Chang (Analyst)

[Foreign language] Thanks for giving me the opportunity to ask questions. This is Peter Chang from J.P. Morgan. I have two questions. First is about the effective tax rate. We noticed that effective tax rate pickup in first quarter to 18%. We are 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 fee rate. We noticed that in first quarter, blended commission fee rate stabilized and picked up slightly. We wish to understand the reason behind and what will be the trend going forward. Thank you.

Arthur Chen (CFO)

[Foreign language] In terms of the effective tax rate in the first quarter, this quarter our effective tax rate is around 18.6%. There are two reasons behind that. One is more and more our overseas markets start to generate a profit. The historical accumulated tax credit has been fully utilized, which will consequently enhance our overall effective tax rate. Secondly, after the implementation of Pillar Two by OECD in different markets and the different countries, our overall effective tax rate will be impacted to some extent as well. I would expect our overall effective tax rate will maintain 17%-18% in the coming quarters. [Foreign language] In terms of the second question regarding the blended commission rate changes, actually there's a slight uptick on a Q on Q basis in terms of the blended commission rate.

The reason behind that is mainly due to the product mix change. There's more clients trading on certain derivatives such as U.S. options, etc. Going forward, as we will launch more new products, for instance, the crypto trading, etc., I do expect that our overall blended commission rate will maintain stable. Thank you.

Operator (participant)

Thank you for the questions. One moment for the next question. Our next question comes from Alan Kuang from Citi. Please go ahead.

Alan Kuang (APAC Region Commercial Account Specialist)

[Foreign language] Thanks, Management, for giving me the chance to ask a question. This is Alan from Citibank. My first question is on Hong Kong markets. So Futu previously has a market share target about 40% in Hong Kong. That basically implies about 1 million paying customers in Hong Kong. Judging from our one Q numbers, our paying customer numbers is already approaching close to around 900K. And given the pace of all new paying customer acquisition in Hong Kong is so fast, we think our long-term goal of market share of 40% in Hong Kong is probably within reach within the next couple of quarters.

Against this backdrop, wondering if Management could share your updated view on the Hong Kong markets, especially considering that there's recent changes in the competitive landscapes with potential competition from Ant Group and Robinhood. If we 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 the 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 for our margin financing, security lending, etc.

Arthur Chen (CFO)

[Foreign language] For the second question regarding the idle cash, roughly the idle cash related income accounts for 35%-40% of our total interest income for this quarter. The very strong robust increase in the revenue arising from idle cash partially due to two reasons. Number one is we got a very strong net asset inflows from existing clients, not to mention a lot of new clients we acquired in the first quarter. Secondly is due to the market was quite volatile in the first quarter. In our observation, a lot of clients actually partially inclined to increase their cash position and lower their stock positions, which is we got some benefit arising from that as well.

Alan Kuang (APAC Region Commercial Account Specialist)

Thank you. Over to you. Thanks.

Daniel Yuan (Chief of Staff to CEO and Head of Strategy and IR)

[Foreign language] In terms of our Hong Kong market share, the absolute number of fund accounts you mentioned applies to our Greater China business, while the market share target you mentioned was about our Hong Kong local business. These two numbers are not apple to apple comparisons. In the past two quarters, we have seen the Hong Kong market contribute the highest number of paying clients among all of our seven markets, which gave us confidence that as a leading broker in Hong Kong, we'll be able to gain outsized benefits from favorable market conditions. We think that our Hong Kong business has huge runway for growth, both in terms of client numbers and client assets. The Hong Kong market has never been short of competition.

In the past few years, there have been a number of our peers, very notable peers, entering into Hong Kong. Regardless of how the outside market environment changes, we've always been doing product innovation and product iteration. We believe that our product capabilities have built a very strong barrier to entry for our business. In each and every market we enter into, we build very customized product experience, very innovative product features. Coupled with our superior user experience and very competitive pricing strategy, we continue to gain user mind share in Hong Kong and take market share. On top of that, we think brand is probably one of the most important intangible assets of the financial services platform. Building a brand takes time. Futu has built a considerable level of trust with our clients.

We have seen very, very high client stickiness on our platform. It is consistently above 98% and 99% on a quarterly basis. If there is a newcomer that cannot provide highly differentiated product experience and service, we do not think it can sway the client choices. As we continue to build our brand, we have also seen a higher number of high net worth clients in Hong Kong, which contributed to a very high net asset inflow quarter-over-quarter. We have also seen that when the clients choose a broker, that decision is usually multidimensional. Whether it is applying a zero commission strategy or just direct traffic from other platforms, we do not think either one is going to achieve very desirable effects. The users will choose the platforms that are compliant, that have high brand recognition, and have the strongest all-rounded capabilities. Thank you.

Operator (participant)

Thank you for the questions. Our last question comes from Zoey Zong from Jefferies. Please go ahead.

Zoey Zong (Senior Associate)

[Foreign language] Thanks, Management, for taking my question 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. Wondering what's your AI product strategies and investment scale? My second question is about VATP. Could you please share an update on the business development with your VATP license? Thank you.

Arthur Chen (CFO)

[Foreign language] For VATP license, there's actually there's no any update in the first quarters. Despite we got the shortlist by Hong Kong SFC for VATP license alongside with other couple of applicants. Now we are still in the process of phase two. There are still a lot of validations need to be conducted by the third-party consultants, independent consultants. And there's a lot of process testing work need to be complete in order to get the final approval from SFC. We will keep you posted for there's any progress. Thank you.

Daniel Yuan (Chief of Staff to CEO and Head of Strategy and IR)

[Foreign language] In terms of our AI strategy, Futu has assembled our own AI team. We're closely monitoring the industry developments and keeping up with innovations. The AI is applied in two ways. Futu, one, internally we use it to increase operating efficiency, and we also leverage AI to develop new products and features for our clients. In terms of operation efficiency, we've already leveraged AI in a number of scenarios, including customer services, the account opening documentation verification processes. We've seen AI bringing tangible uplift to our operating efficiency.

In terms of our client-facing features, we think that for active traders, a key benefit of AI would be to lower the investment threshold and help them more efficiently gather information to make informed investment decisions. For example, we will launch Algo Trading very soon. Before, Algo Trading was almost exclusively for the sophisticated institutional investors, and now for our retail clients, by telling AI the stock you are interested in, the parameters you want to monitor, and what kind of conditions will trigger trade, our AI can generate an Algo Trading function for our clients, which we think significantly lowers their barrier. Around that goal, we will continue to innovate to bring more AI-powered features. Thank you.

Operator (participant)

Thank you for the questions. With that, I'd like to hand the call back to Mr. Daniel Yuan for closing.

Daniel Yuan (Chief of Staff to CEO and Head of Strategy and IR)

That concludes our call today. On behalf of the Futu Management team, I would like to thank you for joining us today. 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)

That concludes today's conference call. Thank you for your participation. See me now in this company.