Hello, ladies and gentlemen. Welcome to Futu Holdings First Quarter 2022 Earnings 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'd 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 first quarter 2022 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 a number of important factors could cause actual results to differ materially from those containing any forward-looking statements. For more information about the potential risks and uncertainties, please refer to the Company's filings with the SEC, including its registration statement. With that, I will now turn the call over to Leaf. Leaf will make his comments in Chinese, and I will translate.

Thank you all for joining us today. As of quarter end, we had 1.3 million paying clients, representing a 68% growth year-over-year. In the first quarter, we added approximately 82,000 paying clients, and we are well on track to deliver on our prior guidance of adding 200,000 paying clients in 2022. This was also the ninth consecutive quarter to which organic growth contributed over 50% of new paying clients. In Hong Kong, client acquisition picked up as we leveraged our strong brand positioning, leading product offering and sound financial standing to attract clients and assets from smaller-sized brokers suffering from plummeting client engagement amid a weak equities and IPO market. Our quarterly paying client retention rate returned to the pre headline news level of over 98%. Client retention in Singapore improved for every quarter since we launched the business as we optimize client acquisition channels and incentives through rapid iteration. Despite dampened market sentiment, users continue to engage actively with a growing portfolio of content, products and services in our ecosystem. Average DAUs exceeded 1 million and average user time spend was around 30 minutes for all trading days in March. Our DAU also exceeded 1.2 million for the first time. Total client assets declined 16% year-over-year and 5% quarter-over-quarter. The sequential decline can be attributed to sharp market depreciation, partially offset by robust net asset inflow across markets. Notably, total client assets in Singapore increased by 15% sequentially despite challenging mark-to-market impact. We continue to see an inflow of high-quality clients in Singapore. For clients that we acquired in January, for example, their average asset balance almost doubled by March. While we observed a meaningful uptake in securities lending balance, margin financing balance slipped sequentially as our clients deleveraged some of their margin positions of end market turmoil. Total…

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 HKD1.6 billion, down 26% from HKD2.2 billion in the first quarter of 2021. Brokerage commission and handling charge income was HKD968 million, a decrease of 27% year-over-year and an increase of 13% q-over-q. The year-over-year decrease was mainly attributable to lower trading volume of a very high base in the first quarter of 2021, partially offset by a higher blended commission rate of 7.3 basis points. The q-over-q increase was mainly driven by sequential growth in trading volume. Interest income was $575 million, a decrease of 13% year-over-year and 7% q-over-q. The year-over-year decrease was mainly due to lower interest income from security lending business and the lower IPO financing interest income and a very inactive IPO market. The q-over-q decrease was mostly attributable to lower margin financing income as client deleveraged. Other income was HKD98 million, down 56% year-over-year and 23% q-over-q. The year-over-year and q-over-q decrease was both primarily due to lower IPO financing service charge income, currency exchange service income and underwriting fee income. Our total costs were $228 million, a decrease of 49% from HKD443 million in the first quarter of 2021. Brokerage commission and handling charge expenses was HKD96 million, down 55% year-over-year and up 9% q-over-q. Brokerage commission expenses didn't move in tandem with brokerage commission income due to an upgraded service package was mainly due to lower IPO financing interest expenses and the lower interest expenses associated with our store lending business. Interest expenses recorded a steep decline in the interest income due to lower blend funding costs as we further diversify our funding sources. Processing and servicing costs were…

[Operator Instructions] You're first question comes from the line of Emma Xu from Bank of America Securities. Please ask your question.

So thank you for giving me the opportunity to ask the first question. So congrats on your very stronger results in the first quarter. So, I have a question for your second quarter operations. Could you please run us through the major operating metrics in quarter to-date? And we see you gain market share in Hong Kong market in the first quarter if the trend continues in second quarter, and do you expect it -- and do you expect to continue to gain market share in rest of the year? And also, how about the performance in your other new international markets?

Thank you, Emma. Given that this is the first quarter earnings call, we are more focused on the first quarter situations. I think Li can give you some more high-level qualitative colors in terms of quarter-to-date situation. But maybe I can answer your second question first. I think the trend, which will witness the market consolidation, especially in Hong Kong markets continue to accelerate in the second quarter, quarter to date, given that we think number one, more and more small players start to exit from the market, we can see some small brokers including some even big ones such as [indiscernible] closed on their office in Hong Kong in the first quarter. Secondly, we see more client asset migrations from these small brokers to these leading players such as Futu, et cetera. I think maybe Li can give you some more colors in terms of second quarter overall situation.

I think the client acquisition pays is, to some extent, affected by market performance, and we have seen client acquisitions slow down a bit across various regions and by market and Greater China region, a client acquisition remains largely stable with Hong Kong outperforming, as other mentioned, on the back of market consolidation. And in Singapore, we continue to see the clients entrust us with more of their assets. And despite the robust momentum of net asset inflows, total client assets still experienced a single-digit q-on-q decline so far, largely due to this mark-to-market. Yes. So we're going to share some color on our Singapore and U.S. client cohort. And in Singapore, we saw robust growth in both net asset inflow and average client assets. And as of the end of the first quarter, average assets per paying client in Singapore has exceeded SGD9,000, which represents a sound quarter-over-quarter growth. And for example, for the clients that we acquired in the most recent quarter, their net asset inflow in the quarter increased to around SGD6,000, which should only be realized in about three to six months for those clients that we acquired right after re-launching Singapore. And generally, we saw both improving quality and quantity of clients in Singapore, which is in line with our overall expectations when we launched in Singapore. And then a little bit about our U.S. business. So despite the rapid growth of clients in the U.S. in the first quarter, average assets per client still suffered a decline. And for the rest of the year, we'll put more emphasis on improving client quality. And we also continue to adjust our client incentives for different client acquisition channels in order to test the client acquisition efficiency for clients with different profiles. And this adjusted by certain fluctuations in the number of new clients and average assets per client in the U.S.

Our next question comes from Leon Qi from Daiwa. Please go ahead.

This is Leon Qi from Daiwa. I have two questions today. Firstly on the trading side, I appreciate that management mentioned in your opening remarks that the blended commission rate actually saw a quite sizable uplift. This is mainly because of a number of new noncash equity products on such as inverse EBS, futures and the other products in Singapore. Just wondering that over a longer time horizon, does management have any deal split in the trading volume between cash equity and derivative products? And also, if possible, I appreciate management will share some color on our upcoming pipeline and the development of products in our major markets? The second question is that just wondering if management could give any updates on the progress of your R&D expenses, note that we actually, as you are investing heavily on the R&D side. Just wondering if we have any updates compared with the guidance is given a quarter ago on the timing of -- on the timing when we could see the results of these investments.

Thank you, Leo. This is Arthur. I will take these two questions. Number one, just to give you some -- a little bit of sense about derivative trading contributions for our total trading commission, derivative accounts roughly 30% in this quarter. I think the contribution from the derivative in this -- in the first quarter was particularly high due to the market conditions, a lot of investors looking for instruments to do the hedging when the market -- regardless in the U.S. Chinese ADRs or Hong Kong market was quite volatile in the first quarter. If you look at our long-term strategy, I think number one is we do not encourage people to trade the derivatives. I think the guiding principle for us is to let investors understand the risks associated with these very complicated training instruments. But at the same time, definitely, we -- after we provide sufficient investment education, we do want investors to use these instruments to make a much better risk-reward returns versus other online brokers such as Robinhood or other U.S. players, you can see their derivative revenues contribute much, much higher of their total revenues compared with us, which accounts for roughly 45% even to 50% above. Therefore, I think our current 30% contribution is healthy. We do think, at the same time, there is a huge room for the Hong Kong directive development, given that more and more Chinese ADRs go back to the Hong Kong, there will be more market trading liquidity in this market, which definitely will be a huge plus for our derivative business in Hong Kong down the road. For your second question, the R&D expenses, as we provide certain guidance in terms of staff head count increase this year. In the beginning of this year, we project roughly 20% headcount year-over-year increase. And we maintain this budget so far. I think in the first quarter, roughly our headcount increased 5% q-on-q basis. Therefore, everything is on track. Most of our R&D expenses actually belong to the salary and the bonus for our R&D personnel. I do think they work very, very hard to make the things forward, especially for some key projects such as U.S. sales clearing and also some new products to be launched in the second half of this year.

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

So my first question is on customer acquisition costs. So we have seen a q-on-q decline in customer acquisition costs in Q1. How should we think about the trend in Q2 and future? And my second question is since we've launched our business in Australia on 8th March. So could you please provide some color about the user traffic, brand assets per paying client and customer acquisition costs in Australia?

Thank you, Zoey. I will leave the second question to Leaf, and I will address your first question regarding the CAC. You are right. I think the overall CAC costs in the first quarter is around HKD3,500 surpass our -- the budget of HKD2,500 to HKD3,000 in the beginning of this year. The reason is in, the first quarter actually we had some advertising campaign commitment, which we have already made the last Q4. And this campaign has been carried forward to the first quarter. In the remaining three quarters, we do think there can be sequential decrease in terms of absolute CAC amount. We -- hopefully, it can be back to the range of HKD2,500 to HKD3,000 something. At the same time, I think, as Robin mentioned before, this year, alongside the number of new paying clients will be more focusing on the quality of our new paying clients as well. Therefore, besides the client acquisition costs, we'll also take into the consideration of asset acquisition costs as well.

As we mentioned, we officially launched in Australia on March 8, which is about three months ago. And since then, we have mostly been focusing on building the local team and exploring marketing strategies. We think there's a large growth prospects in Australia, and we'll wait to see more data.

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

As we observed, Futu has acquired many clients from other brokers in the last few months and accelerated the market share gains as the leading platform. And we believe Futu will be the potential winner in the coming sector consolidation among the mark-to-market. Could you give us some more color about the reasons why so many clients from our competitors choose to transfer their accounts to Futu? And what's the target Futu's market share in stock and the derivatives in Hong Kong market or Hong Kong retail market?

I will take these two questions. I think number one, you're right. We made very encouraging progress in the Hong Kong market in the first quarter. Actually, if we look at net asset inflows in the first quarter, it's actually the second best the quarters in terms of net asset inflows in Hong Kong. We do think Hong Kong will face a very significant industry consolidation and it will be the leading players like Futu will be definitely benefit from this trend. Besides this new client we acquired, I think in the first quarter and going forward, we are also focusing on our existing clients' asset inflows, in particular, in the first quarter, we do a lot of proactive marketing campaigns to attract our existing clients to migrate more assets to Futu from other brokers or even from the banks. Therefore, we can see more as inflows generating from our existing clients. And secondly, we do think the industry dynamics in Hong Kong will become more benign, given that certain of our peers start to strategically exit from the Hong Kong markets. In terms of the product offerings, definitely, there will be a lot of new exciting product pipelines in our -- in the second half of this year. For the trading perspective, we are looking for more FX trading starting from the second half of this year. And also, we will more -- cater to certain institutional investors demands in the Hong Kong trading and the U.S. trading as well. And for the -- for your second question in terms of the long-term market share, I think now on the cash equity side, in Hong Kong, our market share is around the 2% to 3% versus our peers in the Asia markets or in other regions, we do think there are still ample rooms to be consolidated. And also for the reference, in the past several months, our market shares in the Hong Kong future is in the range of 5% to 8%. We are very confident we will get more market shares in this particular niche market. And also, at the same time, the whole type of the Hong Kong derivative, we have sufficient -- we are very confident with -- have a very meaningful upside going forward as well. For the option trading, in Hong Kong, our market share now is around the 10%. I think we are -- we make -- close to the savings gradually of 10% market share from a retail growth perspective has been already very high.

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

That concludes our call today. On behalf of the Futu management team, I would like to thank you for joining us. If you have any further questions, please do not hesitate to contact me or any of our Investor Relations representatives. Thank you, and goodbye.

Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect.