Hello, ladies and gentlemen. Welcome to Futu Holdings' Second Quarter 2023 Conference Call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a Q&A session. Today's conference call is being recorded. [Operator Instructions] I would now like to turn the conference over to your host for today's conference call, Daniel Yuan, Chief of Staff to CEO and Head of IR at Futu. Please go ahead, sir.

Thanks, operator and thank you for joining us today to discuss our second quarter 2023 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 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 on Form 20-F. 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 today. I'm pleased to announce that we acquired over 57,000 paying clients in the second quarter, bringing the total number of our paying clients to nearly 1.6 million, robust organic growth across all overseas markets drove a 41% sequential acceleration in client acquisition. In the second quarter, Hong Kong market contributed approximately one third of new paying clients as effective offline marketing campaigns attracted older clients who prefer in-person instructions on how to open trading accounts and navigate our user interface. In Singapore market, we also witness strong paying client growth on the back of U.S., equity market outperformance and the enticing yield of money market funds. In the U.S., we brought in more clients of higher quality as we iterated on marketing channels and client incentives. Despite fragile market sentiments, our group's quarterly paying client retention rate remained above 98%. In the second quarter, we continue to roll out new products and features across markets, to help clients better execute their trading strategy we launched bracket orders for U.S. and Hong Kong stock options and futures, an algorithmic order for all clients in Hong Kong and Singapore. In Singapore and Australia, we now give clients access to certain U.S. stocks in EPS 24 hours a day, five days a week, thereby enhancing the accessibility of U.S. stock trading. Total client assets were HK$466 billion up 8% year-over-year and flattish quarter-over-quarter. Negative mark-to-market impact on client Hong Kong stock holdings dragged total client assets. The net asset inflow in overseas markets remained robust, which offset the market impact. Singapore market delivered strong asset growth during the second quarter with a 21% and 12% quarter-over-quarter increase in total and average client assets respectively. This was the fourth consecutive quarter where the Singapore market achieved double digits…

Thanks, Leaf and Daniel. Before going through our financial performance, I'd like to give you an update on our latest $500 million share repurchase program announced on March 11, 2022. At the end of the first half, we have repurchased an aggregate of 11 million ADS with approximately $360 million total repurchase amount in open market transaction. This constitutes about 70% of the maximum purchase amount approved on our share repurchase program. Now back to the financial performance in the second quarter. All the numbers mentioned below are in Hong Kong dollars. Total revenues for the quarter were HK$2.5 billion, up 42% from HK$1.7 billion in the second quarter of 2022. Brokerage commission and handling charge income was HK$953 million, a decrease of 8% year-over-year and a 12% Q-over-Q. The Q-over-Q decrease was mainly due to the decline in the total trading volume, partially offset by the increase in the blended commission rate from 8.8 basis points to 9.9 basis points. Interest income was HK$1.4 billion, an increase of 127% year-over-year and 9% Q-over-Q. The increase was driven by higher interest income from cash deposits and a higher security lending income. Other income was HK$127 million, up 37% year-over-year and then maintained most flat Q-over-Q. The year-over-year increase was driven by higher fund distribution income. Other income maintained largely stable Q-over-Q since high open distribution and service income and the transfer fee were largely offset by lower currency exchange income underwriting fee income and the market information and the data income. Total cost was HK$375 million, an increase of 80% from HK$208 million in the second quarter of 2022. Brokerage commission and handling charge expenses was HK$55 million, down 37% year-over-year and the 23% in Q-on-Q. The decrease was attributable to lower trading volume and cost savings from our U.S.…

[Operator Instructions] We will now take the first question, one moment please, from the line of Chiyao Huang from MS. Please go ahead.

Let me briefly translate. So the two questions regarding the trading volume, and we're seeing the trading volume slip further than the overall market in both Hong Kong and the U.S. in the second quarter of Futu. So just wondering what's the implication there? And also, we are seeing the brokerage commission bouncing quite sharply in the second quarter and roughly what's the driving factors behind? Thank you.

Thank you, Chiyao. I will take two of your questions. Number one, regarding the trading volume, it is generally just in line with the overall market conditions, particularly in the second quarter we see very -- the market actually is very challenging across the board, regardless in the U.S. or in Hong Kong. What we observe is actually the trading velocity from our clients both in the U.S. and also in Hong Kong has decreased, but the situation seem to be temporary as we see the trading velocity rebound quarter today in the second quarter. Then in terms of the trading commissions, the major reason as we elaborate several times before is more related to the client's trading behavior in the U.S. stock. As in the second quarter, we see more clients trading this low value stock in the U.S. market, which let our lender implied blended commission rate become higher versus the second quarter.

We will now take the next question from the line of Pu Han from CICC. Please go ahead.

I'll translate. Thanks management for taking my questions. This is Pu Han from CICC. I have two questions here. The first one is regarding the AUM and the revenue breakdown by assets. How much does Hong Kong and the U.S. stocks and the wealth management products? And also the cash balance accounts for the total client asset balance? And how much does Hong Kong and U.S. stock market account for the total revenue risk activity? The second question is regarding the client net asset inflow. So, I wonder, what's the asset inflow of clients in Hong Kong, Singapore, and also Mainland China, respectively?

I'll answer your second question first and we'll leave the first question to leave. In terms of the net asset inflow in the second quarter, we see very healthy rebound in the second quarter versus the first quarter. Given that we got some negative headline use in the second quarter, which caused certain clients uncomfortable in terms of their park assets parking in our accounts. So, this impact has been fully removed in the second quarters and to breakdown among the different regions. Hong Kong actually contributed most of the asset inflows, which followed by Singapore afterwards. I leave the second question to Leaf.

In the past few quarters, the breakdown of Futu's client assets has remained relatively stable with more client assets allocated to Hong Kong stocks than U.S. stocks, and the proportion of Wealth Management assets actually continue to rise in the past couple of quarters, and now accounting for about 10% by the end of 2Q, which more than doubled year-over-year, and client's cash balance accounted for low teens of total client asset balance. And to answer your question regarding the revenue breakdown between Hong Kong and U.S. stocks, Hong Kong stocks usually contribute at about 30% of the trading volume. U.S. stocks contributed 70% of the trading volume. And the blended commission rate for U.S. stocks is slightly higher. So, about 75% of our trading commission actually came from U.S. stock trading. Thank you.

Thank you. We will now take the next question from the line of Cindy Wang from China Renaissance. Please go ahead.

Thank you management for taking my call. This is Cindy from China Renaissance. So I have two questions. First question is related to the customer acquisition cost. So, we see the second quarter new clients have a good strong sequentially. However, the CAC actually went down. So, is that going to sustainable in the second half of 2023? And the second question is related to the Japan market. So congrats to get the license approval from Japan Government, so since we have down the Beta version for Moomoo app in Japan. So can you talk about a little bit more color on what's the effect in the Beta version in terms of client feedback and MAU? And is that going to help you to grow your new client members in the second half of this year? Thank you.

Thank you, Cindy. I will take your first question, and I think Leaf will be very happy to share more colors and his thoughts about the Japan markets. In the second quarter blended commission -- blended client acquisition cost was around HK$3,000 per client. The CAC in Hong Kong was slightly higher than average while that in the U.S. and in Singapore was lower than the average. I think in the second quarter, we continue to optimize different channels particularly some offline channel promotions to get a very good results. So, our efforts on the acquisition efficiency of target client groups has got me reward, and in the future we will further dynamically adjust our marketing strategy to improve the efficiency and also the quality of customer acquisitions. Looking into the second half of this year, I personally think the uncertainties still remain across the different markets, but having said that our view on average CAC will be slightly more optimistic than our view before. Therefore, we think the full year CAC course may have a high single digit decrease compared with them of last year. Thank you. I hand over to Leaf.

We have been operating as a pure information market data platform in the Japanese market for less than a year, accumulating a lot of good feedback from Japanese users. We've also iterated many community networking features based on market trends and user interests. And our data shows that Moomoo's user community in Japan is highly, highly active with the DAU to user ratio averaging around 15% on trading days, indicating very high engagement and certainly significant growth potential. Although trading function is currently not available on Moomoo in Japan. We believe Moomoo has already brought unique value to Japanese users. And in terms of product capabilities, Moomoo now offers various functionalities that were absent among local platforms, such as visual displays of fund flows covering U.S. and Japanese stocks, fundamental and technical analysis. And secondly, most securities brokers in Japan have a 15 to 20 minute delay in market data. And real-time quotes are provided with a cost. However, Moomoo provides free real-time quotes, not only for Japanese and U.S. stocks, but also for foreign exchange options in future state of global capital markets. And furthermore, Moomoo is currently the only online platform in Japan offering an online user community. We've introduced numerous KOLs and conducted live broadcast for popular financial events in the social community, resulting in very high engagement. And last but not least, we have strong trading capabilities in terms of product categories or types, trading duration, and various analytical tools, which can also be replicated in Japan in the near future. And regarding our future development plans, after we received the approval from the Japanese regulators, we are actively preparing and aim to launch the trading functions in the fourth quarter this year to provide Japanese investors with a comprehensive and smooth investment experience.

We will now take the next question coming from the line of Leon Qi from Daiwa. Please go ahead.

Let me record my questions in English. This is Leon Qi from Daiwa. Thanks for taking my questions. My first question is you, regarding Japan market, would management say that our competitive landscape in the online broker space in Japan, it's better than the U.S. from the experience that we run our beta version. More specifically, do we have any expectations on CAC on payback period in Japan? And my second question is on Hong Kong. We are very glad to see that recently FU has opened an offline experience center in Hong Kong. And many, many people are very excited about the product offerings. Just want to ask management that what kind of user operating matrix or financial matrix are we expecting from the offline experiences shops and do we plan to open more offline shops?

Thank you. I think the first question can be answered by my colleague, Daniel, and regarding our physical store in Hong Kong, I think, Leaf is very happy to share more colors and about these thoughts.

Right. So regarding the competitive landscape in Japan, we believe, it is a lot more benign than what we saw in the U.S. We understand that the online securities brokerage industry in Japan is now dominated by a few players. The top five internet brokers including Rakuten and SBI now account for the majority of the market share in terms of brokerage trading volume. They have each accumulated over 1 million clients, among which Rakuten and SBI are the top 2 players. But overall, we think that the landscape is a lot more fragmented than what we saw in the U.S., and we believe that our current product offers a competitive advantage, a very significant one over the existing online brokers. And the Japanese market is huge. And as we mentioned earlier, growing rapidly, and we are very confident to obtain a meaningful market share in Japan. Overall, I think since we haven't really started acquiring clients yet, it's probably too early to talk about customer acquisition costs and payback period. But based on our initial analysis, the Japanese retail investors are generally a lot more affluent than the U.S. investors. And actually, there are a lot more ways to monetize on trading in Japan. Let's take U.S. stock trading, for example. It is now, industry standards charge zero commissions for U.S. stock trading in the U.S., while, everyone still charges, at least all of the major online brokers in the Japan still charge pretty high commission for U.S. stock trading. So, we think, generally, the investors are wealthier and there are more monetization opportunities in Japan. Thank you.

Since this opening on July 31st, over a 1,000 people have visited our experience store and many of who are middle-aged customers who are not familiar with the online account opening process. And previously it was difficult for us to reach this client group through our online marketing channels, but these happened to be the target customer group that we want to further tap into. So, the experience door has helped us establish connection with these clients and has become an important channel to enhance Futu's brand recognition among this group. In addition, the experience door in Hong Kong allows us to make face-to-face communications with these users and have a better understanding of Futu's product offerings. And according to the data we have collected so far, the customer acquisition cost of experience stores is actually lower than our average Hong Kong market customer acquisition cost. So from a CAC perspective, experience stores can actually help us reach previously underpenetrated client groups and further enhanced brand image in Hong Kong at a lower cost. From the perspective of operating costs, we believe that experience door really help us with long-term brand building, and we also plan to use these doors as a venue for various offline investor educational activities events and corporate offices, which will further help save costs. And if these experience -- if this experience door continues to record very good progress in terms of client acquisition, we expect to have more experience stock stores in Hong Kong. Thank you.

Thank you. I will now like to turn the conference back over to Daniel Yuan for closing remarks.

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

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