Futu Holdings Limited ($FUTU)

Hello, ladies and gentlemen. Welcome to Futu Holdings First Quarter 2026 Earnings Conference Call. [Operator Instructions] Today's conference is being recorded.I would now like to turn the conference over to your host for today's conference call, Alan Cui, Investor Relations Manager at Futu. Go ahead, sir.

Thank you for joining us today to discuss our first quarter 2026 earnings results. Joining on the call today are Mr. Hua 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 on side of the top culture. Forward-looking statements, involve inherent risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from those contained in any forward-looking statements. For more information about the potential risks and uncertainties, please refer to the company's filings with the SEC, including its annual report. With that, I will now turn the call over to Leaf. Leaf will make his comments in Chinese, and I will translate.

[Foreign Language]

[Interpreted] Thank you all for joining our earnings call today. In the first quarter, we added 225,000 net new on the account bringing our 2 funding accounts to HKD 3.59 million, up 34% year-over-year and 7% quarter-over-quarter. Although subdued [indiscernible] markets with our plan acquisition, to still contributed to cyclized new account addition among all regions. We remain confident about sustained client growth in Humco. Looking ahead, we will focus more on the growth of client assets, and lifetime value, leveraging our strength in product innovation, brand trust and one-stop platform to first [indiscernible] the commercial potential of the focal market.

[Foreign Language]

[Interpreted] Singapore delivered double-digit sequential growth in net new funding accounts. Over the past 3 years, average [indiscernible] in Singapore grew at a CAGR of more than 50%. Given the balanced profile of local residents, we continue to see significant room for further asset growth in sample Malaysia led on market in client addition for another quarter, thanks to our effective marketing initiatives around U.S. equity as well as strong IPO product capability which allowed us to capitalize on the active Malaysian IPO window for accelerated client growth. Meanwhile, profitability in Malaysia continues to improve and we expect the market to achieve breakeven within the next 6 to 12 months.

[Foreign Language]

[Interpreted] In Japan, our superior U.S. equity trading capability continued to drive client acquisition. In the first quarter, U.S. stock trading volume in Japan recorded double-digit conquercial growth, while U.S. options contract volume doubled this year, we will continue to enhance our Japanese equity trading experience. to better meet domestic investment needs and further unlock client acquisition potential. In the U.S., we officially received online play approval to operate a prediction market brokerage business and will soon begin offering even contracts, including for related products to local investors for the strengthening better proposition to active traders.

[Foreign Language]

[Interpreted] Fund engagement strengthened on the back of precious metal market oldies and geopolitical tension leading to the second highest quarterly net asset inflow on record. However, mark-to-market losses in client equity holdings exerted a substantial negative impact. To decline [indiscernible] that removed flat quarter-over-quarter, yet up 47% year-over-year. Transat recasted double-digit sequential growth in Japan, Australia and Canada, and the average plan effect across the 3 regions also reached all-time highs and scoring improving client quality, rising with [indiscernible] through margin financing and security lending balance up 8% sequentially to HKD 72.9 billion at quarter end.

[Foreign Language]

[Interpreted] Studer trading volume reached a record TWD 4.15 trillion up 29% year-over-year and 4% quarter-over-quarter. U.S. stock trading volume remained broadly stable at HKD 3 trillion. AI continues to be the dominant investment team. with client interest, gradually shifting down the value chain from semiconductor names towards AI infrastructure beneficiaries. [indiscernible] stock trading volume rose 22% sequentially to HKD 1 trillion, a heightened market volatility drove stronger bottom fishing activities. A trading in China technology and newly listed AI rigid company more than compensated for softer momentum in the consumer sector. Thank you.

[Foreign Language]

[Interpreted] In March, Panda Trade officially obtained second phase approval for the Hongkong SSBT license and commenced food operations. First launch, a portion of Fuji Security's crypto trading volume and AUM has migrated to penetrate. Looking ahead, we plan to introduce security-backed market financing for [indiscernible] in Hong Kong to further enhance capital efficiency across costs. At the same time, we will continue to expand the capability of our crypto exchange, including OTC trading, broader [indiscernible] support and taking services. We are also actively exploring new institutional service use cases with the goal of making penetrate a key infrastructure within the Hong Kong VAC3 ecosystem.

[Foreign Language]

[Interpreted] Puren wealth management plan assets were HKD 178.4 billion, up 28% year-over-year and broadly stable quarter-over-quarter. In the first quarter, [indiscernible] asset allocation partly located from money muteins into equity funds amidst improving risk advertise. In response to evolving client demand, we further expand our transaction. In Hong Kong, we became one of the first brokers to offer space economic in mutual funds. While in simple, we do our local [indiscernible] and the MES equity market development program. We also launched Gold and oil-linked structure notes and onboarding new issuers due to retail subscribers for structured products doubled sequentially.

[Foreign Language]

[Interpreted] As of quarter end, we served 625 IPO distribution and IR, up 26% year-over-year. In the first quarter, 12 IPOs each saw over HKD 100 billion in subscription loans on our platform. While it issuers appointed us as overall coordinators for their [indiscernible] colistin and scoring our strong distribution and underwriting capabilities. During the quarter, we also acted as joint book runner for several prominent, including those of AI, Midmax and Biden technology. Next, I'd like to invite our CFO, Arthur, to discuss our financial performance.

Thank you, Leaf and Alan. Please allow me to walk you through our financial performance in the first quarter. All the numbers are in Hong Kong dollars unless otherwise noted. Total revenue was HKD 5.9 billion, up 25% from HKD 4.7 billion in the first quarter of 2025. Blockage commission and handling charge income was HKD 2.6 billion, up 14% year-over-year and down 5% Q-o-Q. Total trading volume grew on both year-over-year and Q-o-Q basis. while blended commission rate declined due to stronger trading activities in higher priced U.S. stocks and auctions during the quarter. Interest income was HKD2.7 billion, up 28% year-over-year and down 13% Q-o-Q. The year-over-year increase was mainly driven by higher interest income from margin financing and the bank deposits, while the Q-over-Q decrease was primarily attributable to lower interest income from security borrowing and the lending business as well as best deposits. Other income was HKD 564 million, up 8% year-over-year and down 10% Q-o-Q. The year-over-year increase was primarily driven by higher currency exchange, service income and IPO subscription service charge income. The cubical decrease was mainly due to lower enterprises public relationship service charge income and IPO subscription service charge income. Our total cost was HKD 749 million as compared to the first quarter of 2025. Brokerage commission and handling charge expenses were HKD 164 million, up [indiscernible] year-over-year 16% Q-over-Q. The year-over-year increase was broadly in line with the growth of our brokerage commission and handling charge income the Q-o-Q increase was mainly due to transaction fees repaid in the prior quarters. Interest expenses were HKD 415 million, down 12% year-over-year and 5% Q-o-Q. Both the year-over-year and Q-on-Q decrease was mainly driven by lower interest expenses associated with our securities borrowing and lending business. Processing and service costs were HKD 117 million, up 25% year-over-year and 13% Q-o-Q. Both year-over-year and the Q2 increase was primarily driven by higher product service fees. As a result, total gross profit was HKD 5.1 billion, an increase of 29% from HKD 3.9 billion in the first quarter of 2025. Gross margin was 87.2% as compared to 84% in the first quarter of 2025. Operating expenses were HKD 1.6 billion, up 25% year-over-year and flat Q-over-Q. R&D expenses were HKD 479 million, up 24% year-over-year and down 5% Q-over-Q. The year-over-year increase was primarily driven by higher R&D headcount to support strategic initiatives and new markets. Selling and marketing expenses were HKD 557 million, up 21% year-over-year and 10% Q-o-Q. Both the year-over-year and Q-over-Q increase was mainly driven by higher customer acquisition costs. G&A expenses was HKD 541 million, up 30% year-over-year and flat Q-o-Q. The year-over-year increase was primarily due to an increase in G&A personnel. As a result, income from operations was HKD 3.5 billion, up 31% year-over-year and down 15% Q-over-Q. Operating margin increased to 30.3% from 57.2% in the first quarter of 2025. mostly due to strong top line growth and operating leverage. On May 22, 2026, the company received an administrative penalty reprenotification letter from the China Securities Regulatory Commission, Shenzhen Bureau in an aggregate amount of approximately RMB 1.85 billion, which has been fully reflected in our first quarter financial statements as adjusted subsequent events under U.S. GAAP. This amount does not impact our business fundamentals or financial stability. We remain focused on long-term growth across international markets. As a result, our net income decreased by 61% year-over-year and 75% Q-over-Q to HKD 831 million with net income margin at 14.2%. Prior to giving effect to this adjustment, our net income would have increased by 36% year-over-year and down 13% Q-over-Q to HKD 2.9 billion with net income margin at 49.9%. As of the close of the U.S. market on May 27, 2026, we have accumulatively repurchased approximately USD 418 million worth of ADS reflecting management's strong confidence in the company's future growth prospects and the commitment to deliver shareholder value. Subject to market conditions, we may continue to execute repurchase from time to time and the USD 800 million share repurchase program announced in November 2025. That concludes our prepared remarks. We now like to open the call to questions. Operator, please go ahead.

[Operator Instructions] And our first question is going to come from the line of You Fan of CICC.

[Foreign Language] [Interpreted] Thanks sales management for taking my call. This is You Fan from CICC. I have 2 questions. The first one is about the regulation. Would you please share more on your understanding of the latest regulatory requirements published by CSRC and SFC after Friday. And what's the impact on -- the second quarter is about our regional breakdown. Would you please share more data on the regional breakdown of the net new added paying clients existing paying clients in Q1 and also the AUM breakdown by region Q1. These are my 2 questions. Thank you.

[Foreign Language]

[Interpreted] CSRC and SFC released updated industry-wide regulatory update last Friday. Regarding cross-border securities future and fund-related activities involving mainland Chinese investors. We paid close attention to the update immediately and responded proactively. This regulatory adjustments apply uniformly across the industry, and the company will continue to actively embrace regulatory requirements and setting along subsequent compliance measures in stricter products with the guidance. As a licensed financial institute, TCI has always placed compliance operations as its top priority. Previously, we had already fully sized account opening for Mainland Chinese Mtholder. We're continuously strengthen our account review and antiproduct mechanism. We maintained 0 tolerance towards fraudulent activity. And over the past 2 years, we have cumulatively rejected tens of thousands of noncompliant account opening application. As of the end of the first quarter, Mainland China founding accounts represent approximately 13% of our Q2 funding account. While related client assets accounted for around 17% of Futu, contributing approximately 20% of total revenue. In addition, the 2-year replication period of Mainland Chinese clients does not require force account closure, but rather, restrictions on deposits and security buying activities where clients are physically located within Mainland China. Over the past several years, Futu's business has also become increasingly diversified. In Hong Kong, despite the intense competitive market environment, we have maintained a market share of over 50% among local residents. Meanwhile, the company's international expansion has entered a phase of full acceleration. In the first quarter, move our overseas independent brands delivered strong year-over-year revenue growth across all overseas markets. With revenue in 5 countries, more than doubling. Overseas funded accounts surpassed 2 million while client quality continues to improve steadily with average AUM per client reaching approximately USD 18,000, significantly higher than that of other local online investment platform. Looking ahead, the company expects to expand into more international markets. Regulatory license applications are progressing smoothly. While we are also advancing related preparations in parallel. We believe our global expansion strategy will further enhance the resilience of the group's business structure and broaden its long-term growth potential. Overall, the company's operations in both Hong Kong and overseas markets remain fully normal and various new business initiatives are progressing in orderly manner. We do not expect this regulatory update to have any material impact on our full year guidance of 800,000 net new for the accounts. Q2 will continue to adhere to its compliance and international expansion strategy. We are continuously enhancing its product and service capabilities to drive long-term sustainable growth.

[Foreign Language] [Interpreted] Malaysia and Hong Kong together contributed more than 0.5% half of net new fund accounts in the first quarter, while among the remaining markets, Singapore contributed the largest per share. And at the end of the first quarter, over 55% of the group fund accounts were under our overseas brand movement, primarily from Singapore, U.S. and also the Malaysia. At the end of the first quarter Futu Security Hong Kong entity contribute the largest share of the group's total assets. Within Momo, total client assets was primarily contributed by Singapore and the U.S. Thank you.

Our next question comes from the line of Leon Qi with CLSA.

[Foreign Language] [Interpreted] This is Leon Qi from CLSA. I will recap my questions in English. I have 2 questions. My first question is on the regulatory aspect. With the recent regulatory updates as well as the administrative penalty disclosed, we would like to understand your latest cooperations with banks and other funding partners. For example, in our credit lines with the banks, funding costs or credit ratings, are they generally remain stable. Some color around that will be very helpful to us. My second question is on the growth potential in our international markets, especially the mature markets. We do understand that Futu already has a very strong presence in Hong Kong and Singapore. How do you think about the runway ahead for continued growth in these markets?

[Foreign Language] [Interpreted] For first question, regarding the credit facility and also the credit rating. Actually, this work, I and my teams had a very constructive discussions with our credit rate agency and commercial bank partners around the globe. I'm very happy to share that our credit facility remained intact and in the next couple of weeks, we are very likely to get our annual credit rating issued by S&P and I'm very confident there will be a good result go ahead. [Foreign Language] [Interpreted] While Futu has achieved a very extensive user coverage in Hong Kong and Singapore, there remain enormous potential to further penetrate and grow client assets our recent report issued by BCG stated that Hong Kong has overtaken Switzerland to become the world's largest core water wealth management hub with Singapore ranking the third -- according to the public data by SFC, Hong Kong's wealth management assets exceed HKD 35 million by the end Data from the MAS also shows the city state wealth management assets also topped HKD 34 trillion over the same period. By contrast, Futu Group's total assets stand now just over HKD 1 trillion. As 2 major international financial hubs, Hong Kong and Singapore boosted trillions in resident wells with our brand influence continue to grow our in-depth well service in these 2 markets are still in the early stage. The market upside remains substantial with vast room for development. After more than a decade of refinement, we have built a comprehensive product portfolio, outstanding customer service capabilities and expanding global financial service ecosystems. We are fully confident in the future, and we will keep optimizing our offering and further deepen our presence in these 2 mature markets. Thank you.

Our next question comes from the line of Tal Hung with MS.

[Foreign Language] [Interpreted] So basically, 2 questions from me. One is on the U.S. prediction market. What is the main opportunity that the company is focusing on? And what's the planning here? Is there any synergy with the current business in the U.S.? And how do management see the margin and the TAM of this business in the U.S. A second question on the crypto business in Hong Kong, especially regarding the VATP. Is there any update on the product and strategies and also potentially what kind of synergy could we have between the Hong Kong crypto business with that in the Singapore and the U.S.? And also wondering how does management think about at what level of client assets should be in crypto in order for us to see a meaningful monetization opportunities and roughly what time it's going to take? And the time we're spending is more on building our own infrastructure and product offerings or just to -- for the acceptance of the client to grow.

[Foreign Language]

[Interpreted] Thanks for the questions. Regarding the production markets, Momo financial and Futu clearing officially obtained OCM license in May, allowing us to conduct production market brokage and the clearing business. Alongside the license application process, we have also completed the development of our product and system capabilities and expect to launch production market trading service to our U.S. retail clients in the near future. Compared with traditional derivatives such as futures, production markets products are generate more intuitive, easy for clients to understand and offer more flexible participation mechanisms. This not only helped improve retail participation in financial markets and promote broader financial inclusion but also has the potential to become the important driver for client acquisition, trading activation and the client conversion on the platform. And we also witnessed in the past couple of months, a lot of major U.S. players such as Taxi, Holy markets and roaming goods made a huge progress in terms of new client acquisition through these new product offerings. And also for production market product linked to the financial events, market makers' hedging activities around the underlying assets would further enhance liquidity in both sports and the directive markets. while also strengthening the overall price discovery efficiency across security markets. Our expansion into the production market business in U.S. is not only intend to capture the rapid growth opportunity in the local market, but I think more importantly, to accumulate core know-how in areas such as product design, operational management and risk control. We believe this experience will help lay the foundation for expanding production market business into additional markets in the future. At the present, we are also very actively engaging and discussing with regulators in other jurisdictions regarding the scope and the feasibilities of protection market products.

[Foreign Language] [Interpreted] So let me quickly translate. So in March, as Leaf mentioned in the opening remarks, Penetrate successfully passed the second phase approval of the onco FSC's ATP license and officially commenced full operation. So going forward, we will focus on advancing the business across 3 dimensions. So firstly, we will strengthen the internal synergy and traffic conversion capability. So currently a portion of Fuji Security's virtually asset trading volume and AUM has already migrated to penetrate. Looking ahead, as the group of gradually secure compliant virtual [indiscernible] in additional regions we will actively explore deeper collaboration opportunities between our regional conspiracy brokerage businesses and penetrate with applicable regulatory framework. Second, we will continue to enhance our virtual asset product ability subject to regulatory approval, we tend to progressively introduce core functionalities such as OTC trading, additional token listings and staking services. Basically [indiscernible] to provide more comprehensive virtual asset solutions for high net worth and institutional clients. Binbaholding and exchange losses also allowed the group to participate more directly in industry infrastructure date. And actually explore innovative product opportunities, including perpetual future. And certainly, we aim to build a long-term ecosystem capability. So in the future, we plan to explore sector market trading for tokenized securities integration with third-party brokers and one-stop solutions for virtual asset ETF insurance covering IoT, trading, custody and sticking services. So as traditional finance and virtual asset markets continue to converge, penetrate has the potential to evolve into a key infrastructure platform within the Hong Hobaccosystem. And we've seen [indiscernible] single market for -- especially for the crypto part, they are still in the early stage of development. So as for Futu, we will continue to do investor education and product innovation. So as a platform that has both brokerage and cut exchange capability, we think we are very confident in the future good potential of the overall crypto business. Thank you.

Our next question is going to come from the line of Emma Xu with BofA Securities.

[Foreign Language] [Interpreted] So the first question is about the interest income. So we thought that interest income declined 12.8% sequentially. So could you please provide the breakdown our interest income by category drivers of the quarter-over-quarter changes for each item as well as the quarter-to-date trends. The second question is about the operating trends in second quarter so far. So could you update us the latest new founded accounts, AUM, including the net asset inflows and mark-to-market changes as well as the trading volume?

[Foreign Language] [Interpreted] Now let me very quickly translate. In the first quarter, approximately 40% of the group interest income was from idle cash, another roughly 40% contributed by margin financing. The remaining mainly came from the store going and the lending business. the Q-over-Q decline in interest income was mainly attributable to lower store borrowing and idle cash interest income, while margin financing interest income achieved a sequential growth. idle cash interest income declined due to 2 reasons: #1 is federal rate cut in May, December last year was fully reflected in the first quarter. Then secondly, heightened market volatility during the quarter drove more active buying deep behaviors among clients, leading to sequential decline in average daily cash balance, which also weighed on idle cash interest income. By contrast, supported by active margin trading activity in both the U.S. and Hong Kong. Our margin financing balance increased meaningfully on a Q-on-Q basis, therefore, contribute more market financing interest income. At the same time, security borrowing interest income declined sequentially mainly due to market factors as the entire volatility in the U.S. equity market was going down in the first quarter. overall short-selling demand moderate, leading to a meaningful decline in security lending yield at the same time. Based on the current run rate in the second quarter, we expect the overall interest income to remain broadly stable Q-on-Q. Thank you.

[Foreign Language] [Interpreted] Okay, let me quickly translate. So based on the current second quarter run rate, the net new funding accounts are expected to remain stable sequentially. Net is that inflows has maintained a strong growth momentum between in the first quarter. While last Friday's regulatory developments created some short-term disruption to net inflows, the overall impact remains manageable. And benefiting from positive quarter-to-date March market performance, as well as continued active client treating [indiscernible] , both AUM and trading volume has the potential to achieve double-digit sequential growth. Thank you.

Our next question comes from the line of Charles Zhou with UBS.

[Foreign Language] [Interpreted] This is Charles Zhou from UBS. So I have 2 questions. The first, we have seen recent developments such as an acquisition of Bright Smart securities intensive marketing by Weibo, the launch of the Hong Kong U.S. [indiscernible] trading function by [indiscernible] Bank and CA Bank. So how does the company view the intensifying competition in the Hong Kong market? My second question is related to South Korean markets. We also note that the Korean textiles have been performing very, very strong year-to-date. So does the company have any plans to expand into the Korean equity markets would appreciate if you can share some details such as your time line or maybe the target markets.

[Foreign Language] [Interpreted] Let me very quickly translate. First, we think Hong Kong remains a market with significant long-term potential. According to the Hong Kong Chief Executive 2025 policy address, since the launch of [indiscernible] talent admission initiative, more than 230,000 professionals have relocated to Hong Kong for work and development opportunities against the backdrop of rising global multiple uncertainties, increased number of high net worth individuals and international capital are also flowing to Hong Kong, driving continued expansion in market wealth and SFPs. For Futu, we remain very confident in our own competitiveness even several well-known peers have entered into the Hong Kong market in recent years, we have continued to see study expansions in our customer base, client assets and the market share. At the core of this achievement is multi-dimension competitive mode we have built over time, supported by time barriers to entry. On the product and service front, we have already established a comprehensive one store financial service platform in Hong Kong, while continuous enhancing innovative capabilities such as AI applications. combined with competitive pricing, this enable us to deliver industry-leading user experience to our clients. More recently, we have also planned to launch Career stock trading, as you just asked before. From a branding perspective, we have spent more than a decade deeply cultivating Hong Kong market and has established very strong brand recognition and client trust increasing number of clients are willing to place their core assets with Futu's platform over the long term, while the proportion of high net worth clients continue to rise in the past couple of quarters. This type of brand equity cannot be replicated through short-term marketing spending alone. Finally, we do not view competition as a purely negative sense because Hong Kong has always been one of the world's most competitive financial markets. Over the long run, competition drives industry innovations for leading platforms with strong product capabilities, brand trust and ecosystem advantage, competition may, in fact, create opportunities to further consolidate market share. More importantly, in Hong Kong as a global financial center, we believe our penetration into the tens of trillions of dollars of personal investable assets is still at a very early stage, while our brands continue to mature. Supported by our long-term accumulative strength, we remain highly confident in our abilities to continue growth, both in client and client assets in the Hong Kong market. Thank you.

[Foreign Language]

[Interpreted] In April, Kutubu and Momo officially supported real-time market data for South Korean stock. Our team is currently actively preparing for the rollout of South Green Soft trading, which is expected to first launch in Hong Kong and Singapore in June, with more regions to follow progressively thereafter. Currently, many clients friendly game exposure to soft inequity indirectly through leveraged ETF and similar products. As of May 26, Futu's securities clients accounting for approximately 30% and 18% of the holdings in the soft leverage EPS on sensor electronics and [indiscernible] EPR or SK Helix, respectively -- reflecting strong client demand for soft credit equities, particularly main within the AI supply chain. As a leading one-stop investment and trading platform, Futu remains committed to providing clients with diversified global asset allocation opportunities and best-in-class trading experience, and we will continue to monitor the potential of other international stock markets and dynamically evaluate additional market access opportunity based on the client demand and commercial value.

Thank you. And this will conclude today's question-and-answer session. I would now like to hand the conference back over to Alan Tay for closing remarks.

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.

This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.