Hello, ladies and gentlemen, welcome to Futu Holdings Third Quarter 2021 Conference Call. At this time, all participants are in a listen-only mode. After the management's prepared remarks, there will be a Q&A session. Today's conference call is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the conference over to your host for today's conference call, Daniel Yuan, Chief of Staff and Head of IR at Futu. Please go ahead, sir.

Thanks, Operator, and thank you for joining us today to discuss our third 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 risk and uncertainty. 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. So, with that, I will now turn the call over to Leaf. Leaf will make his comments in Chinese and I will translate.

[Foreign Language] Thank you all for joining us today. In our third quarter, we added 166,000 net new paying clients, bringing our total paying clients to [about] [Ph] 1.2 million. This was the seventh consecutive quarter where over 50% of new paying clients were acquired organically. Our quarterly paying client retention rate slightly slipped to 97% due to [dampening] [Ph] market sentiment. [Foreign Language] We continue to execute on our overseas strategy. In Singapore, we iterated on client incentives and budget allocation between brand and performance marketing to optimize client acquisition efficiency. In the third quarter, we observed higher retention rate and consistent asset inflow across client cohorts. We continue to expand product offerings in Singapore by launching U.S. IPO subscriptions, structured warrants, and fund products. [Foreign Language] In Hong Kong, we remain the top-of-mind retail broker as the number of our Hong Kong users already constituted one-third of the adult population in Hong Kong. We intend to further penetrate into the young and tech-savvy population, and expand into the demographics that are currently not well represented in our client base. Despite the new players entering into the Hong Kong market, which has always been a very crowded space, we are confident to extend our leadership position because we believe the key success factors of a broker include a trustworthy brand, superior user experience, and end-to-end proprietary trading infrastructure, a strong capital base, and close relationships with commercial banks, which all take time to cultivate, and are where our competitive strengths lie. [Foreign Language] As of quarter end, total client assets were HK$424 billion, representing 111% year-over-year increase, and 16% quarter-over-quarter decrease. The sequential decrease was largely due to the sharp pullback of some Chinese new economy stocks, though this mark-to-market impact was alleviated by robust net asset inflow. Average…

Thanks, Leaf and Daniel. Please allow me to walk you through our financial performance in the third quarter. All the numbers are in Hong Kong dollar unless otherwise noted. Our total revenue was HK$1.7 billion, up 83% year-over-year and 10% q-over-q. Brokerage commission and handling charge income was HK$933 million, an increase of 66% year-over-year and 17% q-on-q. The increase was driven by the 33% year-over-year growth in total trading volume and the higher blended commission rate of 6.9 basis point. Since most of our clients adopt the commission-per-share pricing model for U.S. stock trading, there's a decrease in the average share price of stock they trade, resulting in a higher blended commission rate. Higher contribution from derivatives trading also support our commission rate expansion. Interest income was HK$632 million, an increase of 129% year-over-year, and up 4% q-on-q. The year-over-year and the q-over-q increase was both driven by higher margin financing and the securities lending income partially offset by lower IPO financing interest income. Other income was HK$166 million, up 56% year-over-year and down 2% q-on-q. The year-over-year increase was primarily due to increase in enterprises public relationship service charge income and the currency exchange service income. The q-over-q decrease was mainly due to the decrease in IPO subscription fees and underwriting fee income and a very active IPO market. Our total cost was HK$267 million, an increase 47% from HK$182 million in the third quarter of 2020. Brokerage commission and handling charge expenses was HK$125 million, an increase of 24% year over year, and a decrease of 14% q-on-q. The expenses didn't grow in line with the brokerage commission and handling charge income due to our upgraded service package with our U.S. clearinghouse and the lower IPO subscription fees. Interest expense was HK$74 million, up 57% year-over-year and…

Thank you. [Operator Instructions] Our first question is from the line of Bella Zhang of TH Capital. Please ahead.

Hi, management. Thanks for taking my question. I have two. There're two mainly about the regulation impacts actually, the first one is, [you know, the new draft] [Ph] from Cyberspace Administration of China requires a cybersecurity assessment for leasing in Hong Kong, well, especially for tech companies with data over one million users. So, my question is, do you actually see any negative impacts on our IPO pipeline because of the new regulations from CAC? And should we expect the IPO pace in fourth quarter and next year will be slowed down a lot? And the second one is -- or in terms of your customer acquisition. There are some concerns about the legality of offshore trading by online brokers. Just wondering if management can share some light on the impacts under government regulation, well, especially for customer acquisition in Mainland China, you know, people may feel hesitate to open new account due to the regulatory concerns. Well, additionally, will that affect your customer acquisition strategy? Let me translate myself. [Foreign Language]

Thank you. I will take the second question first. I will leave the first question to my colleague, Leaf. In terms of the China regulations, I think we are not in the best position to prejudge what the regulator will do. I think, so far, the [impacts] [Ph] to our client positions in the [Great China] [Ph] areas is manageable. I can share a little bit more colors which I think may be helpful for analysts and also the investors to gauge how the [negative] [Ph] impacts on the recent headline news, because of that what's the implication to our client positions across the board. Definitely, we see certain asset outflows among clients in the Great China areas [indiscernible] concerns over media reports. Overall speaking, we think the impacts due very shot-term and manageable. From the mid-October to mid-November, the net asset outflows accounts for less than 2% of our total client assets. And the situation started back normal from last week. In my humble thought, I think the worst is already behind us. Of course, the market volatility alongside with seasonality effect in Q4, together with this headline news definitely enhance the attrition rate for the existing paying clients, and also create some challenges for new client acquisition across the board in the near-term. But we think that, overall speaking, the situation is still within our control. Thank you.

[Foreign Language] Yes, we are business as usual here at Futu, and our business model is nothing new. So, before our inception, this business has been there for years. And our business size is small relative to the whole industry. So, our business model and how we serve our clients are [identical] [Ph] to a lot of the other international Hong Kong and China brokers and banks in Hong Kong that help Chinese-based [indiscernible] access overseas trading. And we are operating under the same set of laws and regulations. You add to that there the differences then, in comparison to our peers, we invest more heavily into technology and innovation. And we attach more importance to user experience. And we have always been embracing the regulations, and have a very high set of standards for operational compliance. And we are actively and transparently communicating with the regulators. And we anticipate and welcome more guidance from the regulators to both us and the industry as a whole. And if there are new regulatory guidances coming out, I think we'll abide by these regulations as soon as possible. And as a listed company, we will timely update on any new information available to us. Yes, and also to your question about whether the IPO pipeline could be influenced, we feel like the IPO pipeline is more dependent on the overall market environment than on the cybersecurity kind of investigations. So, I think how the IPO pipeline will turn out in Hong Kong in the next couple of quarters will be largely dependent on the overall direction of the market. And also, I just want to point out that, historically, we achieve like high single-digit of our revenue through IPO-related businesses including IPO subscription fees and the IPO margin financing income. So, we don't think it's a material impact on our business. And we have a lot more levers to pull to further our growth. And as we mentioned in our opening remark, we think there is still a huge under-penetrated population in Hong Kong that we could tap into, and allow the international markets that we have entered, including the Singapore and the U.S. offer significant runway for growth. Thank you.

Thank you. Our next question is from the line of Katherine Liu of Morgan Stanley. Please go ahead.

[Foreign Language] I will translate for myself. Thank you very much for giving me this opportunity to ask question, so just two questions from me. First, just wondering can the management help us to analyze how to view the overseas market growth opportunity or the room for growth and for Futu? And then the second question is, can the company give us some guidance in terms of the fourth quarter quarter-to-date operational data trend, such as the velocity, [client assets] [Ph], et cetera? Thank you.

Okay, sure. Katherine, let me just supplement the answer I mentioned before for your second question. Still, I will leave the first question to Leaf. I think in terms of the client activities, we see investor sentiment is warming up in the fourth quarter. Of course, in fourth quarter, we face some long holidays, such as national holiday and also for Christmas. If we do take out the holiday effect in Q4, we expect the overall trading volume may be similar to Q3 based on the current run rate. In terms of client assets, as I mentioned before, we definitely got some negative asset outflows because of the headline news recently. But the situation start to back to normal since last week. And in particular, we see very encouraging signals in our overseas markets, such as Singapore. In our opening remark, Leaf mentioned that our average client assets in Singapore already jumped 11% q-on-q basis. I do think on top of that, we will continue to see on a total and also on an absolute basis in Singapore markets, we will still see another at least 15% increase q-on-q on top of the growth what we achieved in Q3. And also in terms of our wealth management products, so far our assets on wealth management segment has demonstrated a strong resilience and we do expect a more product offering to be launched in Q4, which may further drive our AUM continue to go up. Thank you.

[Foreign Language] In Q3, we had about 2.2 million users in Hong Kong accounting for about 32% of the population over age 18 in this region, meaning that about one out of every three Hong Kong adults is our user now. And our penetration rate among Hong Kong population of between the age of 20 and 29 is about 20%, meaning that one out of every five in this group uses our product. Within the Hong Kong market, we maintain a high penetration rate among the young and tech savvy population, while focusing on acquiring the underpenetrated groups such as the middle aged people and the female groups, et cetera. And in Singapore, the adult population is about 4.9 million and assuming that about 30% of them have a brokerage account, there are approximately 1.5 million retail investors representing great potential for further penetration. And also as part of our future international strategy, we will take Singapore as our Southeast Asian headquarter expand into other countries in this region. And similar to Singapore, other Southeast Asian countries lag in terms of their brokerage service capabilities and user experience. And we see that there are approximately 33 million Chinese population in SCA and 22 million of whom are internet users. And based on the IP address of Futu's existing users, we think that Futu has built a high brand recognition in many Southeast Asian countries already. And last but not least, I think we see potential for further growth in the U.S. market as well. We believe that NiuNiu strikes a delicate balance between user-friendly mobile design and advanced product features and converts very well fill the market gap between the incumbents in the market in a lot of people like brokers and our NiuNiu clients in the U.S. increased meaningfully in Q3 on a sequential basis, benefiting strong our initiatives and broadening client acquisition channels. And going forward, we'll adjust our client acquisition strategy based on the market dynamics to reach our target to client groups. Thank you. [Foreign Language]

Thank you. Our next question is from the line of Zoey Zong of Jefferies. Please ahead.

Thanks. [Foreign Language] Thank you, management for taking my question. I have two questions. First, we noted that company newly added 166,000 paying clients in Q3. Could you please provide some color about the user makes like how much come from Hong Kong, Singapore and the U.S. and also could you please also share a mix for the 1.2 million Swiss opening clients? And my second question is regarding customer acquisition cost. So, the entire customer acquisition costs towards around HK$2,400 in Q3. So, how should we expect the next year? Thank you.

Sure. So, I will take both questions. I think number one the breakdown for the new clients acquired in Q3 in general Great China areas accounts for roughly 60% of new paying clients acquired for the quarter. The remaining 40% Singapore roughly accounts for 28% and the remaining 11% belongs to the U.S. and also for your second question in terms of the market and expanding. I think what we focus internally is more, the ARPU versus CAC ratio. Definitely you see, the CAC numbers in the fourth -- in the third quarter increased from a q-on-q basis. Mainly, I think it's due to because the market conditions, which let our attrition rate temporary goes higher. Therefore on average basis, you can see the CAC number slightly go up from a q-on-q basis. It is very difficult for us to give you a quantitative guidance for the CAC number, which be -- have heavily be impacted by the market conditions as you can imagine, but I think in our conviction, user engagement is always the most important things we care, because the transition cost for the paying users to other competitors or to other channels are very high time threshold. Therefore, we still will more focus on the growth. Definitely we will, on a closed basis, monitor our unit economics to make it a more justifiable. For instance, if we look at our Singapore numbers, I think, back to second quarter this year, if we use the CAC number and also our core number at that time, our payback period for our Singapore paying clients is around 2.5 years. But now, you can see after one quarter, our average client asset also already increased by 11%. And we do expect there will be another 15% chunk in the fourth quarter. So, on a more forward-looking perspective, the unit economics will become more and more make sense, after we further gain the trust and confidence from the existing users who will inject on more fundings into their accounts, and also at the same time we will provide more for offerings to enhance our take rate. Thank you. [Foreign Language] Thank you.

Thank you. The next question is from the line of [Charles Zoe] [Ph] of Credit Suisse. Please go ahead.

[Foreign Language] Okay, I will translate by myself. The first question, I just want to clarify the 2%, you just mentioned about outflow. So, what do you mean by that? You just mentioned Greater China, which period? Can you maybe just give us a little more color on that? Second question, you also mentioned that the onboarding process, the due diligence and also the risk management is seen as banks. So, do you mean that your famous commercial bank or private bank for a security brokerage account? I also have two more questions here. The first one is we understand Futu has not adopted a zero-commission policy, like many competitors do. So, we have seen some promotion that offered zero-commission treating either by using a promotion code, a account opening or redeeming coupons and afterwards. So, how do we think about the theories going forward in Hong Kong, Singapore, as far as the monetization of current AUM? Last one is also about the share buyback. So, can you maybe give us more color by your share back, say, at what price and also like how many shares have you already buyback? Thank you.

Sure, Charles. You asked four questions. Let me just take number one, the number four first. Still, I will leave the second question and also the third question to Leaf. I think number -- in terms of the client as outflows as I mentioned before, I just want to share some latest colors or in terms of the implications from the recent headline news. It is very difficult to attribute our clients as outflows because of weather because of the reason hairline use or because of other reasons. But just to give you some very simple statistics, if we look back, the past one month, we do have from that as outflow. I think the amount is roughly in the range of 1% to 2% of our total current asset balance at the end of the third quarter. So, just to give you some sense in terms of the number and also for the share buyback, I think, definitely we will -- this is 13 months share buyback programs and also according to the SEC regulations, actually, we cannot conduct any share buyback during the result the blackout period. Therefore, so far, we have not conducted any share buyback yet. Thank you. [Foreign Language]

Sure, yes. As we mentioned earlier, we abide by the same set of regulations and laws in terms of our account opening procedures KYC and AML, et cetera. So, we believe that what we do is in line with what other brokers and banks in Hong Kong they currently do, we don't think there are differences.

[Foreign Language]

We don't think the competitive environment has changed much in the Hong Kong market. And in fact this price war between our competitors has been happening for a number of years. And, as I mentioned in our opening remark, we believe that the key success factors of a broker include a trustworthy brand, superior user experience, this end to end proprietary trading infrastructure, a very strong capital base and close relationships with commercial banks. And these really all take time to develop. And Futu has developed strong competitive strengths in these areas. And also we understand that the majority of the trading cause for Hong Kong stocks is coming from stamp duty, which is currently 3 bps. We currently charge a 3 bps commission, which is relatively low in comparison to the stamp duty cost. So, we don't feel like the price wall has affected much and we don't have plans to change our pricing. And if pricing is the only lever, our competitors can pull when they enter into the market. If they don't see financial or operational results in the short-term, they may feel a lot of pressure. [Foreign Language]

Thank you. We have now reached the end of our question-and-answer session. And I'd like to hand the conference back to Mr. Yuan for closing remarks. Please continue.

That concludes our call today. And on behalf of 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 other Investor Relations representative. Thank you, and goodbye.

Thank you. That concludes our conference for today and thank you for participating. You may now all disconnect.