Hello, ladies and gentlemen. Welcome to Futu Holdings First Quarter 2021 Conference Call. [Operator Instructions] After management’s prepared remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to your host for today’s conference call, Mr. Daniel Yuan, Chief of Staff and Head of IR at Futu. Please go ahead, sir.

Thanks, operator. And thank you for joining us today to discuss our First Quarter 2021 earnings results. Joining me on the call today are: Mr. Leaf Li, Chairman and Chief Executive Officer; Arthur Chen, Chief Financial Officer; and Robin Xu, Senior Vice President. As a reminder, today’s call may include forward-looking statements, which represent the company’s belief regarding future events, which by their nature are not certain and are outside of the company’s control. Forward-looking statements involve inherent risks and uncertainties. We caution you that number of important factors could cause the 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. So with that, I would now turn the call over to Leaf. Leaf will make his comments in Chinese and I will translate.

[Foreign Language]

Hello everyone, thank you for joining the earnings call today. We are excited to announce that we started off the year with robust growth across our operating and financial matrices.

[Foreign Language]

Our net paying client addition was approximately 273,000, bringing the total number of paying clients to over 790,000, representing 231% year-over-year growth. Three months into the year, we already achieved 39% as our full-year growth target. For the first quarter, over 70% of net additions came from Hong Kong, Singapore and other overseas markets. Organic growth continued to contribute over 50% of our net new paying clients. Despite rapid client base expansion, our quarterly paying client churn rate remains a low 2%.

[Foreign Language]

In several official debut in Singapore on March 8, we have experienced significant growth in client acquisition. Our superior product experience and laser focus on client servicing, coupled with our online and offline advertising and strong word of mouth referral, has helped us quickly capture the mindshare of Singaporeans, characterized by its large and affluent Chinese population, deep and matured capital markets, high penetration of financial services and rising rate as digitalization. Singapore presents a huge market opportunity, let alone a strategic importance as an entry point into the broader Asian market. With a strong growth momentum trending into the second quarter, we are confident to entail rapid growth in Singapore.

[Foreign Language]

In terms of client assets, our average asset balance per paying client climbed to HKD 585,000, a record high since 2016. As of quarter-end, total client assets reached HKD 462.2 billion, representing 368% growth on a year-over-year basis and 62% growth on a quarter-over-quarter basis.

[Foreign Language]

Total trading volume in the quarter was HKD 2.2 trillion, up 278% year-over-year. U.S. stock trading contributed about 63% of the total trading volume. In the past quarter, we launched OSE futures from the Japan Exchange Group and Singapore stock trading, as part of our continued efforts to diversify trading offerings.

[Foreign Language]

Our wealth management business Money Plus established new partnerships with four reputable asset managers in the quarter, including Wells Fargo, Income Partners, Aberdeen Standard and BNY Mellon. As of quarter end, over 59,000 clients held total assets of HKD 13.1 billion in wealth management, up 189% and 108% year-over-year, respectively. As Money Plus' distribution capabilities getting increasingly recognized by asset managers, Fargo entered into an exclusive agreement with us to distribute the Hong Kong dollar denominated retail share class with its China small mid cap growth line, one of its flagship products in the region. In the first quarter, we started to offer a flagship TMT hedge fund, managed by globally renowned asset manager to our qualified investors.

[Foreign Language]

As of quarter end, our enterprise business Futu I&E had 152 IPO and IR clients as well as 200 ESOP solution clients. In the first quarter, we participated in all Chinese ADR’s secondary listings in Hong Kong and were the only online broker in the selling groups of the Hong Kong IPOs of Kuaishou, Baidu, and Bilibili.

[Foreign Language]

The enterprise accounts function in our social community gets increasingly adopted by listed companies to engage with over 14 million retail investors interested in Hong Kong and U.S. stock trading. By the end of the first quarter, over 500 listed companies have set up enterprise accounts with us to promote their products and services, provide business update and live stream earnings call. As of today, nine enterprise accounts have amount over 1 billion followers. Listed companies were an indispensable stakeholder in our ecosystem and their engagement has greatly diversified our content offerings, thereby increasing user stickiness and retention.

[Foreign Language]

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

Thanks, Leaf and Daniel. Please allow me to walk you through our financial performance in the first quarter. All the numbers are in Hong Kong dollar unless otherwise noted. Our total revenue was HKD 2.2 billion, an increase of 349% year-over-year and 86% Q-on-Q. Brokerage commission and handling charge income was HKD 1.3 billion, an increase of 343% year-over-year and 84% Q-on-Q. The growth was mainly driven by 278% year-over-year of our total trading volume increase. Our blended commission rate and our clients trading velocity remain resilient, compared with last quarter. Interest income was HKD 659 million, an increase of 356% year-over-year and 96% Q-on-Q. The increase in margin financing interest income was mainly driven by the strong growth in daily average margin financing balance, higher IPO financing interest income, due to a very active Hong Kong IPO market in the first quarter and increase in our security borrowing and the lending business. Other income was HKD 221 million, an increase of 370% year-over-year and 69% Q-on-Q, a strong growth was primarily, driven by an increase in our IPO subscription service charge income and the currency exchange service income. In terms of costs, our total costs was HKD 443 million, an increase of 276% year-over-year and 83% Q-on-Q. Brokerage commission and handling charge expenses were HKD 214 million, an increase of 327% from HKD 50 million in the first quarter of 2020. The increase was largely in line with the growth of our brokerage commission and handling charge income. Interest expenses was HKD 168 million, an increase of 406% from HKD 33 million in the first quarter of 2020. The growth was primarily due to higher margin financing interest expenses and an increase in our security borrowing and the lending business. Processing and servicing costs were HKD 62 million, an…

Certainly, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] We have our first question coming from the line of Katherine Liu from Morgan Stanley. Please go ahead.

[Foreign Language] Thank you very much for giving me this opportunity to ask questions. This is Katherine from Morgan Stanley. So I have two questions to raise. First is like, management please give some introduction or some briefing in terms of the second quarter this year trend in terms of trading velocity, client acquisitions, growth rates, et cetera. And also in light of the first quarter, strong growth, will management give guidance in terms of the full-year, for example, growth rates in paying clients, et cetera. And second question is could management please give some guidance or introduction in terms of the breakdown for clients by geography? And then, we note that Singapore could potentially see very strong growth. And could management please give us some guidance in terms of the trend – growth trend in the Singapore market? Thank you.

Sure, Katherine. Let me answer your second question first. I will show you our clients breakdown in the first quarter. I will leave the second trend – the second quarter trend and also the – your questions about the guidance to Robin and Leaf. Robin will also give you some colors in terms of our client acquisitions and also the client profile in Singapore, these particular markets. In the first quarter, on a flatter basis, Singapore and the U.S. accounts for 25% of our new paying clients acquired in the first quarter. The remaining 75%, was almost evenly split within Mainland China and also Hong Kong. I think slightly higher in Hong Kong part. I will leave Robin and Leaf to give you a comment about your first question.

[Foreign Language] Although, we have achieved 39% of our full-year paying client growth target in the first quarter, for the time being, we will not adjust our full-year target. Well, we definitely believe that our product has very differentiated value proposition to overseas markets. And in fact, since we enter the Singapore market officially in March, we have seen very strong client growth and that momentum has continued into the second quarter. So we also recognize the brokerage business is positively correlated with the market performance, with market sentiments with the number of IPOs. And we understand that right now the market has disagreements over how the market performance was bought for the rest of the year. So we will not adjust our full-year, kind of, pinpoint growth target for now. And we may give a updated guidance during our 2Q earnings call if needed.

[Foreign Language] Well, we have seen that, the market experienced some level of pull back since mid-February. And we believe that our user’s trading sentiment has been affected more or less and we think that’s perfectly normal. We feel like the markets don’t get a lot of attention right now and kind of under the rotation from growth to value stocks. There are still a number of stocks that are performing really, really well. And from the standpoint of our client assets, we have seen that from March 1st to last Friday, which is May 16, almost on every single trading day, we see a positive net asset inflow except for a couple of trading days. So it’s very positive sign that our clients are continuously putting efforts into our platform. And for us, paying client number, paying client retention and client asset are our three KPIs and we attach much more importance to these three matrices than some short-term volatilities in the client’s trading volume. And let me just add a little bit to your question about Singapore clients profile. So far based on what we have seen, again this is only based on about 2 months and 2.5 months of data that we have seen so far. So Singapore clients average and mid and ages, it’s almost identical to that of Mainland China and Hong Kong clients. And in terms of their client assets, it still lags and actually there is a pretty big discrepancy between our – between the average client assets of our Singapore clients and our Mainland China clients, but we think that’s normal. And based on our experience, when we enter a new market, it will take some time for our clients assets and clients trading volume to catch up. And we’ll probably give more details around our client profile in the next couple of quarters. Thank you.

Thank you. We have our next question, this is coming from the line of Jacky from China Renaissance. Please go ahead.

[Foreign Language] So congrats on the great results. I have two questions: number one, is about our competition. We actually saw some competitors, for example, in Hong Kong market increased – increasing their marketing efforts. And we also hear some Asia brokers may enter the U.S. and the Hong Kong Stock trading business. So regarding the potential increase in competition for our markets and our customers from Mainland and Hong Kong. Do we concern about our customer acquisition costs and the trading commission pricing pressure? And number two is about housekeeping question, could you provide us a rough breakdown of our interest income and also other revenue? Thank you.

Sure, Jacky. Let me answer your second question in terms of housekeeping financial numbers first. I will leave the first question to my – again, colleagues, our CEO Leaf. In terms of the interest income breakdowns, roughly a lot interest income are rising from the margin financing account for 60% to 65% of total interest income. The remaining interest income naturally derived from our client’s idle cash deposit. And also for – in terms of other incomes, actually these two major parts, one is IPO subscription service charge, i.e., normally we charge HKD 50 to HKD 100 per persons, when each participate – participant in the Hong Kong IPOs. The other significant part is the foreign exchange, the service charge. Many of our clients trade in – both in Hong Kong and the U.S. markets, so they do have the demand for the foreign exchange. These two parts, I think roughly will contribute 70% to 75% of our total as a income. The remaining part will belong to such as the distribution income from our wealth management products and other service offerings. Thank you.

[Foreign Language] So from our inception, we operated in a very crowded market. And we don’t think the market is going to get less competitive going forward. And we indeed have seen some players offering zero commission. So we don’t think the change in the competitive landscape will have a downward pressure on our commission rate. Because in Hong Kong, here’s the stamp duty, which is 10 bps. And for us, we offer 3 bps for Hong Kong trading and the marginal benefits for our clients from lowering our commission rate beyond that 3 bps is really low. [Foreign Language] And for some of the Asian brokers, they already have Hong Kong license entities. And besides, we’ve also seen some other online brokers that want to enter the Hong Kong local market. [Foreign Language] So maybe I’ll talk a little bit more about the online brokers, due to similarities in the business model. [Foreign Language] First of all, we definitely welcome online brokers to enter the Hong Kong markets. With more of these players entering the Hong Kong markets, we can educate the market together and helping online brokerage industry as a whole gain more industry recognition. [Foreign Language] Now there are two major types of online brokers that provide Hong Kong Stock trading services. And the first type are the Hong Kong brokers that are licensed by SFC and hold SFC licenses and are regulated by the SFC and Futu is an example of this first type. And the second type are the online brokers that holds licenses of the third domicile and is not regulated by the Hong Kong SFC, for example, the license for New Zealand, and this is the second type using the third-party domicile license to provide trading in Hong Kong. [Foreign Language] And as…

[Foreign Language] Thank you.

Thank you. We have our question coming from the line of Zeyu Yao from CICC. Please go ahead.

[Foreign Language] Thanks, management. This is Zeyu Yao from CICC. First of all congrats to our exciting results. I see our existing business were on track and I was wondering, if there is any possibility that we will apply for new brokerage licenses to serve more customers in other areas or launch more trading products like Bitcoin or other digital currency? Thanks.

Okay. Thank you, Zeyu. Let me answer your first question. I will leave the second question to my colleagues, our Senior Vice President, Robin Xu, for more service and products in our pipelines. For the new license, actually, I think you are right, we are doing some preliminary studies in other international markets, in particular, in the Asian countries. Therefore, as Leaf mentioned in the opening remarks, we do think Singapore is a very important gateway for entering into the Asian market as a whole. But now it’s still in a very preliminary stage. Also, we are doing some feasibility studies in other English language speaking country as well.

[Foreign Language] So we’re planning to launch crypto trading to our international clients in the second half of this year. And also, we’ll plan to roll out more futures under the CME futures. Thank you.

Thank you.

Thank you. We have the next question, this is coming from the line of Zoey Zong from Jefferies. Please go ahead.

[Foreign Language] Hi, management. Thanks for taking my question. This is Zoey from Jefferies. Congratulations on the strong first quarter results and I have a follow-up question on the digital currency. So regarding digital currency at this point, we have noted that Association of China have announced that to balance financial institutions and payment companies from related to crypto currency transaction. I’m wondering what about Futu’s digital currency this year and will China’s to currency have following effects on consumers [indiscernible]

[Foreign Language] We are very much aware of the different regulatory frameworks under different jurisdictions. And actually, we’re in the process of applying for digital currency-related licenses in U.S., Singapore and Hong Kong, but what we know for sure is that we will not offer digital currency trading services to mainland China users. Thank you.

Thank you.

The next one comes from the line of Emma Xu from BofA Securities. Please go ahead.

So congratulations on the very strong results. I have two questions, the first question is about the margin financing business. After the capital – after the follow-on offerings in fourth quarter, Futu further in April – Futu further strengthened it’s ESOP base. So will you try to increase the ratio of margin financing and security loan balance as a percentage of total client assets? And the second question is about client acquisition. You mentioned that 50% of the new client is for organic growth. Then how about the other half, what the acquisition channel for the other half of client statistically and pay more attention about inter clients. How much that we contribute to the new client? And how do you record it to those retail clients, will you recorded them as a new paying client when the stock is listed? Or you will wait and hear their stock are vested? Thank you.

Thank you very much. I will answer the first question. I will leave the second question to my colleagues, Robin and Daniel. Number one, I think we value our paying clients from a DCF – PCF value perspective, i.e., we more care about their lifetime values rather than the near-term P&L they can contribute in terms of our top line or bottom line. Therefore, I think we will not very aggressively encourage our clients to use the margin, because the margin financing involve very high risks. Therefore, I think in our mentality, investment education, how to let our investors know the risk is far more important of our near-term monetization. If you look at our margin balance – financing balance versus our total client assets ratio, this risk ratio historically is in the range of 5% to 7%. I think, definitely after we finish our follow-on placement, we do have more sufficient capitals to support our margin financing business. And in particular, our IPO subscription service in Hong Kong. But we will not intentionally to push up our clients' margin usage unless they know the risks. Thank you.

Hi, I’m Daniel. I’ll take your second question on client acquisition. So about 50% of our new paying clients are from organic growth, then about 15% are from ESOP and group account opening. And the rest, 35% is roughly evenly split between online and offline advertising as well as the third-party channel partners. So definitely, we think about the high-profile IPOs are conducive to our client acquisition, but it’s very difficult for us to attribute certain client base to maybe one or two single IPOs. But we generally kind of observe an increase and uptick in our client acquisition before these IPOs take place. But it’s very difficult to ascertain, which clients come specifically for the IPOs. And for case, like you mentioned, so for employees that have stock options, right now, they’re not counted as our paying clients. Thank you.

[Foreign Language]

Thank you. As we do not have any further questions, I would like to hand the conference back to our host, Mr. Daniel Yuan. Please take over.

Thank you, operator, and thank you all for joining the earnings call today. On behalf of the Futu management team, I would like to thank you for joining our earnings call and if you have any additional questions, please do not hesitate to ask me or any of our Investor Relations representatives. Thank you and good night.

Thank you ladies and gentlemen. That concludes the conference today. Thank you all for your participation. You may now disconnect now.