Hello, ladies and gentlemen, welcome to Futu Holdings Fourth Quarter and Full Year 2021 Conference Call. At this time, all participants are in a 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 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 fourth quarter and full year 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 our earnings call today. 2021 marks another year of rapid client base expansion as we experienced our full-year paying client guidance by adding approximately 728,000 paying clients. This brings our total paying clients to over HK$1.2 million translating into 141% growth year-over-year. We added 77,000 paying clients in 4Q, with about 90% of net paying clients coming from Hong Kong and other overseas market. Paying client retention remains around 97% despite the negative impact from the series of headline news. Looking into 2022, we are guiding for 200,000 net new paying clients, representing 16% year-over-year growth in total paying clients. We will dynamically adjust our growth target subject to market conditions. And among the net addition, we expect roughly one-third to come from the Greater China region, one-third from Singapore, one-third from the U.S. and Australia. [Foreign Language] Our client assets were HK$408 billion, up 43% year-over-year and down 4% quarter-over-quarter, while a tumbled equities market and some headline news weighed on total asset balance. Asset inflows remained positive in each market, totaling more than HK$10 billion. In Singapore, strong asset inflows pushed every client assets up by 26% quarter-over-quarter, despite a negative mark-to-market impact on their holding. [Foreign Language] Total trading volume was HK$1.2 trillion, flattish year-over-year. Due to fewer trading dates in the fourth quarter, total trading volumes were 9% sequentially, despite a higher turnover of 3.1 times. Trading volume for U.S. stock was HK$777 billion, up 14% quarter-over-quarter, driven by surging trading volume in some U.S. tech names, higher U.S. options trading volume and higher trading volume from Singapore clients. Trading volume for Hong Kong stock was HK$403 billion, down 33% quarter-over-quarter due to dampened market sentiments, especially around Chinese tech stocks. [Foreign Language] Our wealth management business maintain resilient…

Thanks, Leaf and Daniel. Please allow me to walk you through our financial performance in the fourth quarter. All the numbers are in Hong Kong dollar, unless otherwise noted. Our total revenue was HK$1.6 billion, up 35% from HK$1.18 billion in the fourth quarter of 2020. Ending up strong year, as full year 2021 revenue grew 115% to over HK$7 billion. Brokerage commission and handling charge income was HK$857 million, an increase of 19% year-over-year and the decrease of 8% q-over-q. The increase was driven by higher blended commission rate of 7 basis points, the blended commission rate expands as commission rate for U.S. equity rose year-over-year and the developed trading contribute a higher proportion of brokerage commissions. The q-over-q decrease was mainly due to lower trading volume for Hong Kong stocks. Interest income was HK$618 million, an increase of 83% year-over-year and a decrease of 2% q-over-q. The year-over-year increase was driven by higher margin financing income, as a result of higher daily average margin financing balance. Other income was HK$128 million, down 2% year-over-year and 23% q-on-q. The year-over-year and q-over-q decrease was both primarily due to lower IPO financing service charge income. Our total cost was HK$217 million and decrease of 10% from HK$242 million in the fourth quarter of 2020. Brokerage commission and handling charge expenses were HK$88 million, down 34% year-over-year and 30% q-over-q. The expenses didn't move in line with our brokerage commission and handling charge income due to our upgraded service package with our U.S clearing house and the lower IPO subscription fees. Interest expense were HK$56 million, down 14% year-over-year and 25% q-over-q. The year-over-year decrease was due to lower IPO financing interest expenses, partially offset by higher interest expenses associated with our security borrowing and the lending business. Interest expenses declined…

Thank you. [Operator Instructions] Our first question comes from Katherine Liu from Morgan Stanley. Please ask your question.

[Foreign Language] I will translate for myself. Hi management. Thank you very much, management, for giving me this opportunity to ask the question. I'm Katherine Liu from Morgan Stanley. So I have two questions. First, can management give us some guidance in terms of the year-to-date operation results in terms of, for example, like new client addition, geographical breakdown, client assets and also turnover rate? And second, this is about the overseas markets. Can management give us some guidance in terms of their plan and target for the Australian market and how they compare the Australian market with Singapore markets. And also, is there any update in terms of U.S. Self-Clearing progress and also the expectations revenue on profit making? Thank you.

Thank you, Katherine. This is Arthur. Maybe I can answer your last question first. Then I will leave the first two questions to Leaf himself. In terms of Self-Clearing, so far, we have already migrated dollar value around 40% of our U.S. stock holdings from our U.S. stream business partners to our own clearinghouse in Dallas. And our target is we try to complete this migration toward the end of the third quarters, because we want to ensure the stability and the system's scalabilities during this transition. So, yesterday, we have already seen positive impacts upon the Self-Clearing, which have generated revenues alongside a lot of zero or essentially zero cost fundings to our operations outside of the U.S. And as we mentioned that, in our previous earnings calls, we do have some very rough calculations after the Self-Clearing completions. For 2022, we do expect there will be around HK$160 million operating revenues incrementally from the Self-Clearing migration and the majority part will be translated into the pre-tax profit. Thank you.

[Foreign Language] In terms of business update, our client addition kind of slowed down a little bit this year due to the negative kind of equities market performance and a less active IPO market. But what's positive around that is that we don't see any lingering impact from the headline news on our client attrition and retention. And to break down among different markets, I think our client acquisition in the Greater China region was largely stable. And although, we saw new competitors entering into the market, we still have a very leading market position. And when there's uncertainties around the market performance and regulations, we will employ a more steady growth strategy. And in terms of Singapore, we have seen very healthy net asset inflow, which offsets the negative mark-to-market impact from the equities market downturn. But our client acquisition in Singapore also slowed down due to negative market performance. And in terms of trading turnover, it was largely stable. And in terms of net asset inflow, it has rebounded from the 4Q numbers. But the overall client assets bill trended down a little bit due to the negative mark-to-market impact. And in terms of our product offerings, in Australia, we've launched the U.S. stock trading, Australian stock trading as well as ETF trading and going forward, we will continue to enrich our product offerings. And as Arthur already mentioned, so for self-clearing business, we’ve migrated about 50 -- over 40% close to 50% of our U.S. stock holdings to our self-clearing business and we already see zero cost funding that's brought about by our clearing business. [Foreign Language] And I like to talk a little bit about the competitive dynamics in Australia. So on one hand, you see those in common players like CommSec and ANZ. Their commonality is that their trading account is seamlessly integrated with the bank account and the bank to broker transfer. It works very smooth and seamless. But the disadvantage is that they typically charge pretty high commission rates and charge a fee for the idle account. And on the other hand, you see those online brokers like SelfWealth and Stake. Their advantage is they have a pretty low commission rates. They have very straightforward trading interfaces. But the general, a lot more sophisticated trading functions, technical analysis, other analytical tools and also a very vibrant community. So these online brokers, they still kind of have a smaller kind of client base, right now roughly around like couple of 100,000. And as for us, we think that we have advantages in terms of our product offerings and in terms of our tech capabilities. But since we are -- we've just entered into the market, it's difficult to gauge market potential, and where we'll come to share more results about our Australia operations next quarter.

[Foreign Language] Thank you very much.

Thank you. Our next question from Leon Qi from Daiwa Capital. Please ask your question.

Hi. Thanks for allowing me to ask a few questions. This is Leon Qi from Daiwa. I have two questions today. First one is about your user mix day, you haven’t mixed geographically, appreciate that management just mentioned a very clear guidance on our user acquisition targeting 2022 and the specific regional breakdowns on it. But if we just take a longer time horizon strategically for the next three years, would you expand the overseas markets? I'm referring in particular for the markets except for Mainland China. Do they expect that the overseas markets to contribute to have much larger proportion of the users and AUM? Appreciate it for management to give us a very high level color on that over a longer timeframe. The second question is about your user acquisition costs. Understand your user acquisition has been very successful over the past few years. But given the dramatic change in the market conditions over the past few months, well, naturally, a lot of customers and potential customers are becoming more cautious. Would you be keep spending your user acquisition dollars in a way that has been similar over the past few years, or you will be considering some changes in the tactics that you are doing in a market that is less exciting, at least for the moment. [Foreign Language]

Thank you for the question. Maybe I take a second question first. I will also leave the first question to Leaf. In terms of the marketing expenses, you're right, it is highly correlated to the market conditions as everybody can understand. For 2022 – for 2022, we do expect our cash for each new paying client's will be in the range of around HK$2,500 subset. And in total that, we will have different parameters to evaluate the effectiveness of the client positions, not only just – the CAC numbers for each new paying client, but also we will more focusing on the payback period for this CAC, i.e. the client's effective ARPU versus cap ratios. Depends on different markets for these more mature markets such as Great China, this payback period will be controlled in the ratio of six months to nine months as always. But for the – some new markets such as Singapore, Australia and the US, et cetera, we are more generous in this – in this ratio, because we think in the early stage the user engagement is due to the most important thing. The things we need to consider. Besides this ratio, we will also look at the other ratio that is the new client asset acquisition costs, i.e. how much money we need to pay for migrate incremental new assets into our platform. On apple-to-apple basis we – if we do not consider the market fluctuations year-to-date or which may continue in the next couple of quarters. We do expect our new client acquisition amount – this client net asset new inflow will be increased by 20% to 25% versus the number at the end of last year. Thank you.

[Foreign Language] I think in three years' time, we expect the ratio of our paying clients from Mainland China, Hong Kong, and other overseas markets to be around 1:3:6. And from a client asset perspective, it's ratio will look more like 2:3:5.

Thank you.

Thank you very much. [Foreign Language]

All right. Thank you. Our next question comes from Zoey Zong from Jefferies. Please ask your question.

[Foreign Language] Thanks management for taking my question. I have two questions. My first question is that when will we launched our digital currency trading services? And then my second question is that among our paying clients, how much were acquired the ESOP? Thank you.

Sure. I will take these two questions. For the second question, actually the new paying clients contributed by the ESOP channel just account for less -- low single-digits for the fourth quarter. Of course, you can understand IPO situations, the market was not very strong in the fourth quarter and also year-to-date as well. For the crypto business, we are still doing the feasibility studies and also certain -- the license application, therefore we have not confirm -- we do not have confirm the time schedule yet.

Thank you.

Thank you. Our next question comes from Zeyu Yao from CICC. Please ask your question.

[Foreign Language] Hi, management. Thanks for taking my question. This is Zeyu Yao from CICC. Congrats to our solid results in this financial crisis [ph] market. I'd like to ask two questions. The first one is regarding our business in the US. I'd like to know what's the new about -- what's new about our customer acquisition strategy in the US market. And what's our next move for business growth in the mid to long-term? And secondly, during our business expansion in 2022, are we still expected to see a rapid growth in employment-related expenses as we had already seen such increase last year? Thanks.

Thanks Zeyu. Maybe I can share some color or our initial thoughts for the headcount increase for 2022. Then my colleague, Robin Xu, can give you some more colors on our US operation and the US marketing strategy going forward. For the overall headcount in 2022, we do look for another 20% year-over-year growth. This growth will primarily be deployed into our R&D functions and also the international market development. The reasons behind for putting more stuff into the R&D is we want to do a very significant system migrations, i.e. from our current infrastructure, building on language C++ to land result [ph] and also we will adopt a more proud native technology in our infrastructure. We are dedicated to assign special taskforce to develop these two areas. And we do expect this migration will be complete towards the end of this year. After this completion, we do expect it our R&D efficiency will be enhanced by 20% to 30% down the road, and the search migration will ensure our systems stability and the scalability in the next three to five years. At the same time it will significantly enhance the system flexibilities and the lower IT spending in the IDC and also the server. These annual IT spending saving will exceed HK$100 starting from 2024. Thank you.

As our client acquisition picked up in the fourth quarter, I think on one hand, that's because we continue to invest to improve our product experience. And we want to improve the conversion rates from the app gallows to registration, from registration to account opening and then from account opening to asset deposits. And another reason is that as our ad spending in the US market increases, our brand recognition has also arisen in the past couple of quarters as a result. I think we need more time to continue to improve our client acquisition efficiency in the US. Thank you.

Thank you.

Thank you. Our next question comes from Emma Xu from Bank of America Securities. Please go ahead with your question.

[Foreign Language] So, I have questions regarding the newly announced $500 million repurchase program, is it accounted for roughly 85% of the cash outstanding by fourth quarter 2021. So, is it because you didn't see much cash needed -- or much working capital needed for future investment, or do you seek that you can continue to generate enough to cash to fund investment in the future?

Sure. Thank you for your question. This is Arthur. I would like to answer this question. Since our IPO, we have conducted three rounds of equity financings, so alongside with this fundings from the share placements, together with our user returning generate every years. At the end of last year, you can see our total net assets reached over $2.7 billion. And we do think, our capability to continue to generate profit and the free cash flow will remain robust in the next one or two years. So, considering our current market conditions and the funding needs for the organic growth, we do think now we have some idle cash which can be deployed and utilized to reward our long-term shareholders. Having said that, we will continue to closely monitor the potential and a merger and acquisition situation, if appeared and also the valuation be attractive. So, it will be reach -- a share repurchase program covering the next almost 18 months. So, it will be very dependent on the market conditions and also the opportunities whether we can come across. Thank you.

Right. Thank you. We have reached the end of the question-and-answer session. I'll turn the call back to Daniel for closing remarks.

Thank you, operator. 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 representative. Thank you and good bye.

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