Futu - Earnings Call - Q2 2020

Transcript

Speaker 4

Hello, ladies and gentlemen. Welcome to Fuji Holdings' second quarter 2020 conference call. At this time, all participants are in listen-only mode. After management's 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 call over to your host for today's conference call, Mr. Daniel Yun, Chief of Staff and Head of IR at Fuji. Please go ahead, sir. Thank you.

Speaker 7

Thanks, Operator. Thank you for joining us today to discuss our results for the second quarter of 2020. 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 statements. For more information about the potential risks and uncertainties, please refer to the company's filings with the SEC, including its registration statement. With that, I will now turn the call over to Leaf. Leaf will make his comments in Chinese, and I will translate.

Speaker 1

大家好，感谢大家抽空参加富途控股2020年第二季度业绩电话会。继2020年一季度之后，我们在第二季度的运营及财务各项指标上再次实现迅猛增长。

Speaker 7

Hello everyone. Thank you for joining us today. We are pleased to announce that we continue to achieve exponential growth across our operating and financial metrics in the second quarter of 2020, following a very successful first quarter.

Speaker 1

我们的有资产客户数创下自2019年上市以来的最高增幅，其中有资产客户数净增64,566人，总数达303,102人，同比增长84%。我们在大陆和香港的有资产客户数均取得飞速增长，其中大陆有资产客户数增速创下2018年四季度以来的新高，香港有资产客户数的同比增速亦进一步升至125%。值得注意的是，自然流量继续贡献了新增有资产客户数的半数以上。

Speaker 7

We achieved the highest paying client growth rate since our IPO in the first quarter of 2019. We added 64,566 paying clients on a net basis in the second quarter, bringing our total number of paying clients to 303,102, up 84% year-over-year. Both our China mainland and Hong Kong paying clients recorded stellar growth. Our China mainland paying clients hit a record high growth rate since the fourth quarter of 2018, while the number of Hong Kong paying clients jumped 125% year-over-year. Notably, organic growth continued to contribute over half of our new paying clients.

Speaker 1

在2019年四季度业绩电话会中，我们给出的2020年净增有资产客户数的指引为9万人。截止今年6月底，我们的净增有资产客户数已经超过了这一全年目标指引。在此，我们将全年指引上调至28万人，预计今年年底的有资产客户数将录得同比141%的增长。

Speaker 7

During our fourth quarter 2019 earnings call, we guided for 90,000 paying clients addition in 2020. Six months into 2020, we have already exceeded our full-year growth target. We are now lifting our guidance to 280,000 net new paying clients this year, which translates to 141% year-on-year growth in our total number of paying clients.

Speaker 1

除有资产客户数外，我们的客户资产规模也呈现强劲增长势头，客户留存率依然保持稳定。二季度，客户留存率高达98%。受客户规模和客户人均资产双双增长的驱动，我们的期末客户资产达到HK$1,424亿，同比增长108%，环比增长44%。今年二季度，我们的客户流失率已经连续六个季度低于或等于2%。

Speaker 7

Besides total paying clients, we also witnessed robust growth momentum in total client assets and stable client retention. With growth in both paying clients and average assets per client, our total client assets reached HK$142.4 billion, representing 108% growth on a year-on-year basis and 44% growth on a quarter-over-quarter basis. The past quarter was our sixth consecutive quarter with a churn rate of below or equal to 2%.

Speaker 1

二季度总交易量亦创下历史新高，达6,439亿港元，同比增长202%。其中，股票交易量达到4,293亿港元，占二季度总交易量的66.7%。7月，我们正式上线了香港个股期货和MSCI指数期货产品。未来我们还将继续丰富衍生品交易品类。

Speaker 7

As for trading volume, our total trading volume reached a historic high of HKD 643.9 billion, up 202% year-on-year. U.S. stock trading volume was HKD 429.3 billion, which accounted for 66.7% of our total trading volume. In July, we launched Hong Kong stock futures and MSCI index futures trading. Going forward, we will continue to enrich our derivatives trading offerings.

Speaker 1

越来越多中概股的赴港二次上市以及大量优质内地企业的在港IPO，将持续助推富途业务的高速发展。在京东和网易的香港IPO中，富途客户的认购总额均超过HK$150亿。此外，客户对生物科技类新股的关注度也持续提升。在佩加医疗和康方生物两大IPO项目中，富途客户的认购总额分别超过HK$190亿和HK$140亿。

Speaker 7

The increase in U.S.-listed Chinese companies seeking secondary listing in Hong Kong and the surge of high-profile Hong Kong IPOs act as major tailwinds for us to further grow and engage our paying clients. Our clients' total subscription for JD.com and NetEase Hong Kong IPOs both exceeded HK$15 billion. We have also seen our clients develop growing appetite for biotech IPOs, with a total subscription for PeiJun Medical and Akiso's IPOs exceeding HK$19 billion and HK$14 billion, respectively.

Speaker 1

作为公司重点战略方向的富途大象财富，在二季度再次取得稳健增长。其中，我们与八家全球顶级基金公司达成合作，包括土信集团、富兰克林及东方汇理。今年6月起，我们也开始向专业投资者提供私募股权基金产品，其中包括向日资本的房地产基金。除了进一步扩充产品品类，我们也持续开发新的产品功能，比如基金定投等。截至6月30日，富途大象财富的总客户资产已达到HK$86亿，环比增长37%。同时有2.5万余名客户持有基金产品，这一比例占到二季度期末有资产客户数的8%以上。我们相信，财富管理业务在我们客户中的渗透率还有很大的提升空间。

Speaker 7

Money Plus maintained strong growth in the second quarter and remains our strategic focus. We established new partnerships with eight reputable mutual fund managers, including T. Rowe Price, Franklin Templeton, and Amundi. We also started offering our professional investors private equity funds in June, including a real estate fund from Oaktree. Besides expanding fund offerings, we continue to add new features, including an automatic investment scheme that allows for automatic investments into the same fund at predefined time intervals. As of June 30, total client assets in wealth management reached HK$8.6 billion, representing 37% sequential growth. Over 25,000 clients, or over 8% of our total paying clients, held mutual fund positions as of quarter end, and we see significant room for further penetration into our client base.

Speaker 1

企业服务也取得了不错的进展。截至二季度末，富途安易的ESOP客户数达104家，IPO分销及IR服务客户数达64家。值得一提的是，我们的ESOP服务深受TMT、新能源汽车和生物医药领域的头部企业的认可。贝壳找房、小鹏汽车、诺诚健华和佩嘉医疗等均选择了富途安易作为ESOP服务商。

Speaker 7

Our enterprise service continued to scale. We had 104 ESOP clients and 64 IPO and IR clients as of the end of Q2. Our ESOP service is gaining increasing traction among industry leaders in TMT, automobile, and biotech sectors. Companies like Beike, Xiaopeng Motors, InnoCare Pharma, and PeiJun Medical have all retained us as their ESOP provider.

Speaker 1

作为一家领先的线上证券和财富管理平台，富途致力于通过卓越的底层技术系统，为客户提供稳定的交易体验。2020年上半年，尽管新冠疫情导致股市剧烈波动，我们的系统可用率仍达到99.98%。今年4月，我们将港股的交易通道总数从原来的100条增至200条，订单并发能力实现翻倍扩容。

Speaker 7

As a leading online brokerage and wealth management platform, Futu offers superior technology infrastructure that allows for stable trade execution. Despite a highly volatile stock market due to COVID-19, our service availability rate in the first half of 2020 reached 99.98%. In April, we doubled our throttle rate in Hong Kong from 100 to 200 to process a higher number of concurrent trades.

Speaker 1

最后，我很高兴与大家分享一则新的消息。8月12日，新加坡金融管理局原则上批准了富途新加坡公司关于资本市场服务CMS牌照的申请。这标志着我们国际化的一个重要里程碑。我们也将继续捕捉新的市场机会，以不断拓展业务版图。

Speaker 7

I am pleased to share that on August 12, Futu Singapore Limited was granted in-principal approval from the Monetary Authority of Singapore for the capital market services license application. This marks a milestone of our internationalization, and we will continue to look for new markets to extend the footprint of our business.

Speaker 1

接下来请首席财务官Arthur介绍我们的财务表现。

Speaker 7

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

Speaker 6

Thanks, Leif and Daniel. In the second quarter, we continued to deliver outstanding financial results. We recorded a total revenue of HK$688 million, up 165% year-over-year and 40% quarter-on-quarter. Our net income was HK$236 million, up 329% year-over-year and 52% quarter-on-quarter. Our total revenue structure and key revenue lines have been largely consistent with previous quarters. Let me walk you through some key financial details for the second quarter. Brokerage commission and handling charge income was HK$410 million, an increase of 236% from the same period in 2019 and up 37% from Q1. The growth was primarily due to 202% year-over-year growth in our total trading volume. Our blended commission rate went up to 6.4 basis points on the back of increasing penetration of derivative trading in the U.S. market. Also, more clients traded low-value stocks during the quarter in the U.S. market, which led to implied take rate higher. Brokerage income contributed 60% of our total revenue in the quarter. Interest income was HK$208 million, an increase of 82% year-over-year and 44% quarter-on-quarter. Margin financing interest income increased on the back of 49% year-over-year growth in daily average margin financing balance. IPO financing interest income increased significantly thanks to an active Hong Kong IPO market and our clients' increasing appetite to subscribe high-quality IPOs on margin. Bank interest income increased due to clients' higher idle cash balance. Interest income as a total contributed about 30% of our total revenue. Other income was HK$70 million. The 192% year-over-year growth was primarily due to an increase in IPO financing service charge income and fund distribution service income from our wealth management business. Other income contributed about 10% of our total revenue. On the cost side, total cost was HK$154 million, an increase of 141% year-over-year and 31% quarter-on-quarter. Brokerage commission and handling charge expenses grew 221% year-over-year to HK$77 million, which was mostly in line with our trading volume growth. Interest expenses increased by 111% year-over-year to HK$40 million, mostly in line with our margin financing business and IPO activities in Hong Kong. Processing and service costs increased by 76% year-over-year to HK$37 million. The rise was primarily due to an increase in the market information and the data fee, as well as an increase in the throttle rate. As a result, gross profit increased 172% year-over-year to HK$534 million. Gross margin was 78% versus 75% in the same period last year. Total operating expenses were HK$264 million, an increase of 82% year-over-year and 35% quarter-on-quarter. Among them, R&D expenses were HK$117 million, an increase of 83% from the same period last year and 39% from last quarter. The increase was primarily due to the continuous increase in the R&D headcount as we continue to invest in our technology platform to sustain long-term growth. Selling and marketing expenses were HK$96 million, up 129% year-over-year and 48% quarter-on-quarter, as we continue to roll out our marketing and branding activities to attract new paying clients. Our acquisition costs per each new paying client were around HK$1,500, down 8% quarter-on-quarter. G&A expenses were HK$51 million, an increase of 31% year-over-year and 9% quarter-on-quarter, which is largely in line with our overall business growth. As a result, our non-GAAP adjusted net income increased by 312% to HK$243 million. The strong bottom-line growth was primarily due to significant top-line improvement and proven operating leverage. That concludes our prepared remarks, and we now like to open the call to questions. Operator, please go ahead.

Speaker 4

Certainly. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star 1 on your telephone keypad and wait for your name to be announced. If you wish to cancel your request, please press pound or hash key. Once again, it's star followed by 1 to ask a question. Thank you. Once again, if you wish to ask a question, please press star 1 on your telephone keypad and wait for your name to be announced. Once again, if you wish to ask a question, please press star 1 on your telephone keypad and wait for your name to be announced. We have the first question from the line of Wei Cheng Tan. Please go ahead.

Hi, Leif, Arthur. Yeah, thanks for the introduction. Firstly, congratulations on the very robust earnings in the second quarter. I have two questions. One is about the paying clients. We see accelerated client acquisition in the second quarter, even better than the historical high in the first quarter, like 40K. Now we have like 65K new paying clients. Can you elaborate more on the drivers of the paying client growth, and how do you see the momentum will continue in the second half of this year? The second question is more like a broader question. Basically, we see the retail activity, particularly the online retail trading activity, has picked up quite a lot across the region, like Hong Kong, China, and U.S. It's a very good operating environment for Futu. But also, we see competition is also rising. We saw Huatai is introducing a zero-commission package in Hong Kong, I think, a few months ago, and maybe there are more competitors entering the market. I would like to ask, if you're looking at one to three years horizon, what do you think is the biggest opportunity as well as the biggest challenge for Futu? Thank you.

Speaker 6

Okay. Thank you, Wei Cheng. I suggest my colleague Robin answer your first question, and Leif will answer your second question.

有两个问题。第一个是关于富途的有资产客户的增长。今年二季度富途有资产客户数又取得了非常强劲的增长。今年一季度其实是取得了一个历史的增幅，但二季度又有一个更强劲的环比增长。有资产客户数增长的主要驱动因素是什么，然后未来增长的趋势是怎样，这是第一个问题。 第二个问题是，今年可以看到全球各个市场，包括中国大陆、香港和美国，个人投资者对股市的参与都有明显的增加。但是同样在香港市场，我们看到有更多的竞争，像华泰在香港推出了零佣金，然后可能有更多的潜在竞争对手在进入这个市场。那在富途看来，未来一到三年富途的机遇和挑战主要是什么？

Speaker 0

我来回答第一个问题，就是关于我们的客户增长的驱动。这里面我理解是有几个原因。第一个是疫情加速使得整个客户的投资习惯的改变。过去还有很多人会由线下的这些供应商来提供，但是疫情实际上是有加速大家会习惯于网上去开户和交易的行为的改变。另一方面是市场波动的增加，吸引了整个投资客户的进入和资金的入场。第二点是我们长期对整个产品体验的打磨，形成了口碑传播和品牌效应，品牌的网络效应。我们今年前两个季度自然流量贡献都超过了50%，所以这个是能够充分体现我们整个产品这里的竞争力。另外第三点是我们在整个运营效率的持续提升，使得我们客户线索到付费客户的转化率有比较大幅的提升。我们认为这是一些主要的我们客户增长的驱动。如果是再看未来的话，可以看到我们整个的渠道，获客的渠道是比较健康的这样的结构。我们目前应该是说我们2019年大陆和香港的客户占比大概是7比3。到了现在2020年底的话，我们预计香港客户有可能会达到40%。所以其实香港本地的客户是我们一个很重要的发展潜力。另外就是我们随着我们新加坡牌照，包括美国牌照的陆续展业，也会成为我们整个获客的强劲动力，帮助富途打开了增长这样的客户的天花板。第二个问题。

Speaker 7

There are three major reasons behind our robust paying client growth. The first one being the COVID-19 pandemic has expedited the change of the behavioral patterns of the retail clients, a.k.a. migrating from offline financial institutions to online trading platforms. Besides, the increased volatility in the market has attracted a lot of new investors and new capital. The second reason being that Futu has long been devoted to optimizing our user experience and have created a very strong network effect and established raising brand awareness. In the first two quarters of this year, you can see that organic growth continued to contribute over 50% of our new paying client growth. The third reason is that our operating efficiency also continued to improve. The conversion rate from our leads to paying clients also continued to improve. Those are the three main reasons behind our paying client growth. Going forward, we think we have a very optimistic view towards our paying client growth. We see very strong paying client contribution from various channels. As of the end of 2019, about 70% of our paying clients were from mainland and 30% from Hong Kong. By the end of this year, we expect Hong Kong paying clients to contribute to over 40% of our total paying client base. We just got the in-principle approval for our license application in Singapore. We think that the U.S. local market and the Singapore market could be our next step for our paying client growth.

Speaker 4

我来回答第二个问题。Wei Cheng，晚上好。其实在香港市场上曾经有非常多的券商去推过零佣金。我相信华泰肯定也不会是最后一家。坦白讲，我们目前来说并没有感受到特别大的压力。我们今年的客户数也仍然在保持一个大幅的加速的增长。其实这里跟整个香港市场的一个收费的结构有关系，因为香港市场有0.1%的印花税。所以在富途港股佣金万三的基础上面，佣金的下行对于客户交易成本带来的边际效应并不是那么明显。富途在历史上一直都不是香港佣金最低的券商，但我们一直都是产品和服务综合实力最强的一家。除了佣金显著低于行业平均水平之外，富途有最好的、最深度的这种行情报价，有最稳定的交易系统，有一个最快的订单执行的速度，以及一个很高质量的资讯和最活跃的这样的一个社区平台。这些都是吸引客户的非常重要的因素。这里是需要花很长的时间去打磨和积累。

Speaker 7

All right. There have been a lot of brokers in Hong Kong that offer zero commissions. Huatai is not the first one, and it'll certainly not be the last one. To be honest, we haven't felt much pressure from these players, and you can see that our paying client growth has demonstrated stronger growth momentum than ever. If you look at the Hong Kong market, there is a 10-bip stamp duty. Futu is now charging 3 bips for Hong Kong stock trading, and we think a further decrease in our trading commission actually brings little incremental value to the reduction of overall trading costs. For the long time, Futu has not been the broker that offers the lowest commission rate in the market, but we believe that we are the one that has the strongest overall user experience. Besides charging a commission rate that's significantly lower than industry average, we have the most in-depth on-market data. We have a very stable trading system that allows for high-quality trade execution. We have very high-quality market news and a very active social community platform. These are all very important reasons to attract new customers, and these all require a long time to establish.

Speaker 4

然后关于未来一到三年公司最大的机遇和挑战，我是这么看的。机遇的话，从交易市场来看，港股和美股市场一直都是全球最有吸引力的两个股票市场。香港市场的IPO的融资额在2018年、2019年都是蝉联第一。相信之后会有更多高质量的新经济公司在香港上市，也会有更多的中概股回归到香港。这都将进一步促进港股市场的繁荣。同时，美股市场依然拥有全球最佳的一些投资标的。我们相信这两个市场能持续吸引增量资金，富途也能不断地去提升市场份额。 从客户数来看，互联网证券业务有着很强的网络效应。我们有信心在客户数方面保持快速的增长。有2000多万大陆人有海外资产。香港的话也有大约200万的股票交易人群。与富途目前30万有资产客户相比，天花板其实离我们还非常远。未来大湾区政策的逐渐落地，也会进一步打开我们的市场空间。 除了大陆和香港本地客户，我们也将扩大我们的业务版图。我们主打美国市场的品牌Moomoo，目前已经吸引了一批忠实的客户。我们也会持续不断地打磨产品去提升市场的影响力。我们昨天也拿到了香港金管局对于我们新加坡资本市场服务牌照申请的原则性批复。这里我们也会持续关注东南亚市场的机会。 我们在财富管理业务的布局也已经看到初见成效，正式上线不到一年，客户资产规模达到了HK$86亿。从目前的数据来看的话，财富管理对于吸引客户的新增资金方面卓有成效。我们希望把富途打造成一站式的财富管理平台，吸引客户把更多的资产放到富途的平台来进行管理。 其实我们也会看到一些挑战。客户数和交易量其实都在一个大幅的增长，以及加上市场的波动，对我们的交易系统和风控系统都提出了非常高的要求。在这一块，我们其实还是需要持续地去加大研发投入来保证系统的稳定性，以及持续地去提升我们的风控能力。同时随着我们业务规模的扩大，势必也会带来人员的扩张。如何去优化人才结构，持续吸引金融和国际化业务的人才，保留和激励现有的人才，其实这都会是一个非常重要的课题。

Speaker 7

In terms of our market opportunities, we believe that our target markets still offer tremendous opportunities for growth. In terms of the trading markets, I believe that the Hong Kong and the U.S. stock markets are still the two most attractive equity markets in the world. The Hong Kong stock market ranks number one in 2018 and 2019 in terms of the equity amount raised through IPOs. We believe that as more high-quality new economy companies come to list in Hong Kong, and as more China ADRs do their secondary listing in Hong Kong, this will further contribute to the prosperity to the Hong Kong stock market. At the same time, the U.S. stock market still has some of the most attractive investment targets in the world. We believe these two markets will continue to attract new capital, and Futu will be able to continue to increase our market share in these two markets. In terms of our client base, we believe that the online brokerage business has a very strong network effect, and we're very confident to sustain rapid growth in our total number of clients. There are over 20 million Chinese nationals with overseas assets, and there are about 2 million retail stock traders in Hong Kong. Considering Futu only has about 300,000 paying clients, we still think there's a long runway for growth. The policies in the Greater Bay Area will further open up our TAM. Besides our two main target markets right now, which is China, mainland, and Hong Kong, I think we'll continue to expand globally. Our Moomoo app that's mostly targeting the domestic U.S. market has already attracted a large fan base, and we'll continue to optimize our products and increase our influence. Yesterday, our Singapore entity also got the in-principle approval for our license application from the Monetary Authority of Singapore, and we'll continue to look out for opportunities in Southeast Asia as well. With the wealth management business, there's certainly a very important strategic focus, and we've launched our business for less than a year, and our total client assets is now over HK$8.6 billion. From the current statistics, we can see that wealth management continues to attract additional assets, and we want to build Futu into a one-stop wealth management platform and to attract clients to put more assets to Futu to manage. Lastly, about our challenges. As our paying clients growth, as trading volumes skyrocketed, and as there is increasing volatility in the market, that poses a lot of pressure on our trading system and also our risk management system. We'll continue to ramp up our R&D investment to ensure the stability of our trading system and to increase our risk management capabilities. As our business continues to grow, we'll continue to hire more people and how to optimize our talent structure, how to continue to increase talents with finance background and with international backgrounds, and how to retain and incentivize our current talent pool. That's also a very important task for us. Hi, Wei Cheng. Does that answer your question?

Speaker 4

Can we move to the next question, sir?

Speaker 7

Yes, please.

Speaker 4

The next question comes from the line of Dafeng Fun from Citi. Please go ahead.

First, congratulations on the very strong quarter. I have a couple of questions here. First is regarding your client base or the new paying clients. First, we'd like to ask on the mix between Hong Kong and mainland China clients in terms of the new paying clients in the second quarter. Also looking at your full-year guidance on the new paying clients, we see it's 280,000, which is a very strong number. Just wondering if you can share some color on the recent two months, like July and August, client growth so far, how you can support this confidence for the full year or second half continuous stream. Also one more on the client side is that we see that the conversion rate has been improving. I think you also mentioned earlier conversion rate from the registered client to paying clients. I'm just wondering whether this is also because of the higher conversion rate you have with the Hong Kong clients versus mainland China. I guess there's still some capital control which may have lower conversion rate. Just wonder if you can break down the conversion rate for the two markets. Next, we'd also like to ask about your trading volume that you reported is your U.S. market trading volume this quarter, which we see has been a very strong growth and much stronger than the Hong Kong market. Wonder if you can share what you see as the reason behind driving this strong growth and also whether this is more skewed towards the U.S. companies or the Chinese ADRs and whether you think this stream is sustainable going forward. Lastly, quite a lot of questions. Lastly, just want to check on your thoughts about the international expansion. We understand you mentioned you're expanding into the U.S. and Southeast Asia market, but also want to get your thoughts on the Asia market license. I understand it's not fully opened up yet in terms of the license approval, but thinking longer term, maybe two, three years, or even longer down the road, what's your thoughts about the chance of getting Asia license as well? Thank you.

Speaker 6

Okay. Thank you, Daphne. Let me just answer your first, second, and also the fourth questions. I will leave the third question to Robin, and the final question regarding the Asia market access to my colleagues Leaf. In terms of the breakdown of new client acquisition for this quarter, China roughly accounts for 53% of the total, and the remaining 47% came from overseas. In terms of the trading volumes, as you mentioned before, the U.S. trading volume roughly accounts for two-thirds of our total trading volumes achieved in this quarter. In terms of the stock trading by our clients, I think we'll be more skewed to these purely U.S. stocks such as Tesla, Facebook, and even GE, etc. The overall Chinese ADRs trading volume on our U.S. trading volume side is roughly about 15%. In terms of the trading volume sustainability, I think it is more because of the high volatilities in the U.S. markets, particularly in the first half of this year. Going forward, I think the proportion of the Hong Kong trading volumes will continue to go up because we continue to gain the market shares in the Hong Kong markets. Compared with the first quarter, which we achieved a 1.4% cash and warrants stock market share in Hong Kong, our market share continued to increase to 1.6% in the second quarter. Such momentum has continued into July and August. Roughly speaking, in July, our market share in Hong Kong already achieved 2.5%, which I think will underpin our growth trajectory in the Hong Kong market trading volumes. So I will let Robin answer your third question about the conversion rate going forward and also our Asia market access by Leaf. Thank you.

Speaker 7

所以有两个问题，一个是给到Robin，一个是给到Leaf。第一个问题是关于这个付费客户的。二季度我们可以看到这个付费客户占总客户数的比例有在提升，可以看到我们这个从客户到付费客户的转化率有提升。这个转化率提升背后的原因是什么？会不会是因为我们香港客户的占比提升？因为可能香港客户的转化率会高一些。

这个其实刚才有说到一部分原因，就是我们整个的付费客户的绝对值的提升，实际上是有一个很重要的因素，是我们整个的运营效率提升，就是从客户的线索到付费客户这里的一个转化率有提升。那这里面其实主要还是得益于我们持续有在我们的一个黄金流程上去做持续优化，包括开户效率和出入金的效率，所以使得我们整个的转化率的提升。另外一个就是我们香港客户的占比有在往上走。那香港客户本身这里面就是会是一个比较高的一个转化率的一个地区的一个客户。那还有一个因素是随着整个市场波动的加大，那客户实际上对整个投资的意愿也会增强，尤其是一些股票来到香港上市，这里面还是有一些打新的赚钱效应，客户主动意愿会更强一些，主要是这三个因素。谢谢。

There are three main reasons behind the higher conversion rate from total clients to total paying clients. The first reason is, as you just said, Daphne, there is a higher percentage and contribution from our Hong Kong paying clients, and Hong Kong paying clients typically demonstrate higher conversion rates. The second reason, as Robin just mentioned, answering Wei Cheng's question, we see an increasing conversion rate between our leads to our paying clients. We have increased our operating efficiency, we have optimized the account opening and the cash deposit processes, which made it easier for our clients to become our paying clients. The third reason is because of the general market volatility and the increase of high-quality China ADRs coming back to Hong Kong. A lot of our clients want to take advantage of this opportunity to make money, and that also resulted in the higher conversion rate. 最后一个问题是给到Leaf的，就是Futu之后，因为之前也提到了说在美国本地市场，包括东南亚市场的一些规划，那之后Futu在A股市场有没有什么计划？未来两到三年在A股牌照方面有没有什么具体的一些想法？

其实对于A股这里，我们一直都是叫做准备但是不刻意。我们早在五年以前，就已经成为了上交所和深交所的Level 2的行情供应商。大家会看到我们在A股的行情报价以及新闻资讯上的积累。对于牌照这里的话，我们也一直有做各种关注，包括最近的深圳市相关的金融管理部门所讲到的大湾区的一些政策，我们也都有留意到。在合适的时机，其实我们也希望能够去得到A股的牌照。但是我们并不会把它列到一个特别清晰和具体的日程表。其实目前我们现在已经在做的，还是有非常多的事情值得我们去深入的。谢谢。

We have continued to look out for opportunities in the Asia market, and five years ago we became the Level 2 market data provider in cooperation with the Shanghai Stock Exchange, and we continue to optimize our market data, our news, our trading offerings for Asia stocks through Stock Connect. We've also noticed the relative policy updates with regards to the Greater Bay Area. At the right time, I think we will consider getting the Asia license, but it's not on our immediate agenda right now, and there are still a lot of other things that we could do and we should focus on right now. Thank you.

Oh, thanks. This is very helpful. Just want to follow up on the conversion rate. I wonder if you can share what is the conversion rate for Hong Kong clients versus that of the mainland Chinese clients. And actually, just one more quick question, if I may, is regarding any potential capital raising plans that you have been undergoing this very fast business expansion and tapping into new markets. Yeah, so wonder if you can comment on that. Thank you.

Speaker 6

Daphne, can you repeat your second question? I think let me just answer your first question first. In terms of conversion rate for the Hong Kong people, because now the SFC asks local people to open accounts through the online model, actually they need to remit at least HK$10,000 to activate their account. So essentially, the conversion rate of Hong Kong paying clients is almost close to 100%. Then the remaining part in the mainland people, the conversion rate between registered clients and paying clients is around close to 30%.

Okay. Got it. Yeah. The second question is just about any potential capital raising as you continue to expand your business, including the margin financing business.

I think at the end of the second quarter, if you look at our margin balance, which is around HK$7.5 billion, this amount actually includes around 20% of this amount is actually belongs to the stock lending, which has no limitations on our equity base. If we take out this part out, our margin balance is around HK$6 billion Hong Kong versus our total equity is close to HK$3 billion. So I think the leverage ratio is still well manageable.

Okay. Got it. Very helpful. Thank you.

Thank you.

Speaker 4

Thank you. We have the next question from the line of Yiren Zhang from Credit Suisse. Please go ahead.

Hi. Thank you for taking my questions. Congratulations on the very strong quarter. Just a follow-up question on the cost side on the strong paying client guidance. Would you provide any outlook on the customer acquisition costs in terms of trends for the second half of this year and the implication for sales and marketing expenses? And also a related question, which I think Leaf touched upon earlier, with the strong growth and better market conditions, are you looking to revise your plan to add new staff? If I'm not mistaken, you've previously guided for a 20% year-on-year growth in total number of staff this year. Are there any new thoughts on this plan?

Speaker 6

Okay. Thank you. Let me answer your second question first. In terms of headcounts, you are right. We plan to increase more headcount in the second half of the year in line for very strong operating growth in the first half year. As you mentioned before, we guided around 20% year-over-year headcount growth in the first half. In line of the recent development of our business, we now consider the full-year headcount increase compared with last year may be in the range of 35% to 40%. In terms of the acquisition costs per each client in the second half year, in the first half of the year, our blended acquisition costs for each new paying client is in the range of $1,500 to $1,600. We hope such range will remain largely the same in the second half for our new client acquisitions.

Speaker 4

Understood. Thank you very much.

Speaker 6

Thank you.

Speaker 4

Can we move to the next question? Yeah. The next question comes from the line of Li Weiliu from HSBC. Please go ahead.

Two questions. The first one is about Hong Kong IPO. Do we have the statistics that how much of our brokerage income and interest income in the second quarter is generated from the Hong Kong IPO? Could you share about the fee mechanism of the IPO? For example, the $15 billion subscription from JD and NetEase, how much do we charge them? What is the interest charging duration and also the rate difference between normal transactions? My second question is about the new function of the PI. Professional investor services is usually the battlefield of resources and the sales personnel who are providing their high-net-worth clients with face-to-face or off-site services or customized services. What is our strategy to develop the PI business, and how is our business different from the traditional private banks in Hong Kong in terms of the target customer group and fee ratio and also the product offering? Thank you.

Speaker 6

Okay. Thank you. Let me answer the first question, and I'll leave the second question to my colleague Daniel. Just some quick numbers. In terms of the Hong Kong IPOs, in the second half, for the brokerage incomes, roughly 3% of them come from the Hong Kong IPO subscription and the tradings. Within the interest income, roughly 20% contribute from the Hong Kong IPOs. We charge several different dollars from the Hong Kong IPOs, including the handling fees, which is normally HK$50 to HK$100 per person per subscriptions. Also, many investors will use the leverage to make the subscription. The relative interest income will be included in our interest income items. The first handling charges, which I mentioned before, will be included in our other income. Then there will be some rebate, roughly 1% rebate, if their subscription was successful and got the shares from the company's allocations. This rebate will be included in our trading commission item as well.

Speaker 7

Hi, Olivie. To your second question on our private equity fund offerings, you are definitely right. Most of the private banks in Hong Kong very much rely on face-to-face interactions with professional investors when selling alternative investment funds. But for Futu, we'll still be relying 100% on our online platform. We'll not have client service representatives that reach out to these professional investors and market our products. The whole tenet of Futu is to equip our investors with information and tools to make well-informed investment decisions. That philosophy continues to our private equity fund offerings. We'll offer on our platform rich and adequate information about the different private equity funds, and hopefully, that's enough information for them to make up their investment decisions. So far, it's only been a little over a month since we started offering private equity funds, and we have seen a pretty nice AUM ramp-up in this area. In terms of our fee and product strategy, I think our fee will still be lower than what most of the private banks charge. On average, we plan to charge about 1% subscription fee for our private equity funds. For our product selections, since most of our clients are still stock trading clients, we'll focus more on the fixed income fund offerings. For the equity offerings, we'll focus more on the tech-related hedge funds. Thank you.

Speaker 4

Thank you. It's very clear.

Thank you. We have our next question from the line of Vincent Geu from Point72. Please go ahead.

Thanks for taking my question. I have several questions. The first is a follow-on question on your new paying customer target. You just revised up your full-year target to 280,000. So that means you expect to grow new paying customers by another 170,000 in the second half. Can I get some color about the run rate in July and August, namely how many new paying customers you already achieved in these two months? And what's the strategy to attract that big number of new customers? What type of customers, mainly from mainland China or from Hong Kong local retail investors? And will this big number of big increasing new customers dilute the average asset per client? This is the first question. And the second question I want to ask is about the current U.S. and China tensions, and U.S. also trying to ask ADR companies to obey their rules to submit audit filings, which can cause some disruption on listing and operations. So were you thinking about also conducting a secondary listing in Hong Kong in the near future? Yeah, that's my two questions. Thank you.

Speaker 6

Okay. Thank you for your question. Let me answer your first question first. In terms of the full-year guidance, you are right. Our full-year guidance implies around 180,000 paying clients in the second half of this year, which means on average, each month, we should achieve 30,000 new paying clients. We do not disclose monthly the paying clients' numbers, but I do think based on the current situations we observed in July and early August, the run rate is well on track. The second question regarding the second listing in Hong Kong for the ADR back home, because we were listed in the U.S. in the first quarter of last year, so theoretically speaking, we cannot apply a second listing in Hong Kong until the early days of 2022. So it is still too early for us to make a final assessment. We are still closely monitoring the political landscape and also the new policies advocated by the Hong Kong Stock Exchange. So currently, we have no confirmed timetable and no confirmed ideas about secondary listing. Thank you.

Speaker 4

Okay. Thanks. Can I just quickly follow up on the new paying customers? Where do you think what will be the mix of these new paying customers? I mean, how much percentage will come from Hong Kong and how much come from mainland China? What do you think the expected impact on the average client asset per new client will be? Will this cause dilution? Yeah. Dilution on your second quarter number.

Speaker 6

Yeah. Understood. Understood. I think roughly speaking, we still target 50% from Hong Kong, the remaining 50% from the mainlands. Your concerns about dilution, I think, mainly depends on the market as well. If the volatility continues, it will further increase the intentions for people to jump in more monies into our platform. That's why we strive to provide more service offering and also product offering to accelerate more monies from clients' banking accounts. On a static basis, the balance of the Hong Kong-based accounts will be slightly lower, roughly 20% to 25% lower compared with the average account balance from the mainland accounts.

Okay. Thank you. Thank you very much.

Thank you.

Speaker 4

Thank you. I would now like to hand the call back to Mr. Daniel Yuan for any closing remarks. Thank you.

Speaker 7

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.

Speaker 4

Thank you. Ladies and gentlemen, that does conclude the conference for today. Thank you for participating. You may all disconnect now. Thank you.