Hello, ladies and gentlemen. Welcome to Futu Holdings Fourth Quarter and Full Year 2023 Earnings Conference Call. [Operator Instructions]. 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 to CEO and Head of IR at Futu. Please go ahead, sir.

Thanks, operator, and thank you all for joining us today to discuss our fourth-quarter and full-year 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 statement. For more information about the potential risks and uncertainties, please refer to the company's filings with the SEC, including its annual report. 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 our earnings call today. In the fourth quarter, we added over 59,000 paying clients. Our total paying clients as of year-end reached over $1.7 million, representing 15% growth year over year and exceeding our guidance. This was due to level four for tissue valves goes up by volume versus on total volume of business. Client acquisition in Singapore has sustained high growth into the fourth quarter. Money market funds continue to garner significant client interest amid high interest rate and market volatility. In December, we became the first and only distributor of Fullerton Fund Management Singapore-dollar-denominated money market funds, the only T+0 Singapore dollar money market funds for retail investors in Singapore. We continue to gain user mindshare in Japan with our rich market information, comprehensive market data, and interactive social community. In the fourth quarter, the average daily downloads of moomoo app in Japan ranked top three among all brokers and surpassed those of Nomura and Matsui Securities according to data.ai. With the recording remarkable gains and hitting new highs, client acquisition in Japan also showed a notable sequential increase in the first quarter. We continue to streamline the account opening process to reduce leakage in the conversion funnel and focused on R&D for key investment products. We launched an growth account in December that will soon roll out Japan equities trading. Our clients in Hong Kong and Singapore will also have access to Japan stock trading in the second quarter. Client acquisition in Hong Kong slowed down due to sluggish market sentiments. We have rebounded in the first quarter along with the recovery of the Hong Kong stock market. In the US, we continue to prioritize client quality over quantity with the average asset balance of new paying clients in their first quarter…

Thank you, Leaf and Daniel. Before going through our financial performance, I'd like to give you an update on our latest share repurchase program announced on March 11, 2022. As of December 31, 2023, the expiration date of the program, we have repurchased an aggregate of $11 billion ADS with approximately USD365 million total repurchase amount in open market transactions. We have put in place a new share repurchase program, which approved and authorized us to repurchase up to USD500 million of ADS before December 31, 2025. Now please allow me to walk you through our financial performance. All numbers Hong Kong dollars unless otherwise noted. Total revenue was $2.4 billion, up 4% from $2.3 billion in the fourth quarter of 2022. We ended 2023 with full-year revenue growing 31% to $10 billion. Brokerage commission and handling charge income were $904 million, a decrease of 14% year over year and 10% QoQ. The decrease was mainly driven by lower trading volumes. Interest income was $1.3 billion, up 17% year over year and down 11% QoQ. The year-over-year increase was mainly driven by higher interest income from client cash deposits due to higher benchmark interest rate and higher margin financing income due to an increase in daily average margin balance. The Q-over-Q decrease was mostly driven by the lower interest income from clients' cash deposits due to a decrease in daily average client cash balance. Other income was $137 million, up 46% year over year and a largely flat QoQ. The year-over-year increase was primary attribute to higher fund distribution income, partially offset by lower enterprise public relationship service income and underwriting fee income. Our total cost of $433 million, an increase of 27% from $342 million in the fourth quarter of 2022. Brokerage commission and handling charge expenses were $59…

[Operator Instructions]. First question today is from Cindy Wang from China Renaissance.

Thanks for taking my call. And I have two question. First one is what's your progress of improving accounts opening process in Japan? And could you provide more color on new paying client acquisition in fourth quarter last year versus first quarter of this year so far in Japan? And when would you expect to launch Japan stock trading? And the second question is regarding to the new paying client. So we see the new paying client target of 350,000 in 2024. It's very impressive. Could you break down by key markets, including like Hong Kong, Singapore, US, Japan, et cetera? Thank you.

Thank you, Cindy. I will take your second question first and will leave the first question to my colleague, Daniel. In terms of our new targets for 2024, the contributions from Singapore, Hong Kong and the Australians -- these existing markets absolute terms should be similar to last year. So the incremental growth drivers mainly come from certain new markets we enter into this year and recently in the fourth quarter last year, such as Japan, Canada and Malaysia. Thank you.

Hi, Cindy. This is Daniel, and I'll take your question on Japan. So in the fourth quarter, we continued to optimize their account opening process and to integrate the redundant processes and pages in that process, and to iterate on the key friction points. And we have seen, therefore, a very meaningful increase in the conversion rate from users to registered clients to paying clients. But in comparison to other international markets, there is still a lot of room for improvement in that conversion number and to continue to optimize that account opening golden process will be a key priority for us this year. And in terms of Japan, equities trading, yes, we are planning to roll out the Japan equities trading to our Japan clients by the end of March. And then in April or May, we're going to roll out Japan equities trading to our clients in Hong Kong and Singapore. Thank you.

Thank you. Next question today is from Chiyao Huang from Morgan Stanley.

My question is on Singapore. So what was roughly the client number and client asset contribution on the overall firm basis? And also wonder what's the strategy in Singapore for 2024, and how's the competitive landscape change in Singapore? And also what's the risk appetite evolving for Singapore clients in '24, given the US market still performing quite well? Are we the trading more stocks? Thank you.

Thank you, Chiyao. My colleagues, Robin will answer this question for you.

In the fourth quarter, the Singapore recorded very steady client growth and contributed about 30% of our total net new clients for the entire quarter. And thanks to the continued net asset inflow of our existing clients and the higher quality new clients, the total client assets and average client assets in Singapore reported 25% and 17% sequential growth, respectively. And the total client assets over reported sequential increase for every single quarter since we launched the business. And average client assets have been on an upward trajectory for six consecutive quarters. And as at the end of last year, average client assets in Singapore was over SGD17,000. And we believe that as we continue to enhance our brand awareness to diversify and enrich our product offerings and to improve our client services, moomoo will continue to attract more high-net-worth individuals. And we've also seen the unit economics in Singapore to continue to improve in the past two years. And taking into account the costs from the headquarters to support Singapore, the Singapore subsidiary was breakeven for the first time during the fourth quarter, and we have some very good growth year to date. And in terms of clients' risk appetite -- so during the past rate hike cycle, we started to promote our Cash Plus product, which is the money market fund product. And we continue to cross-sell on different investment products based on our clients' risk appetite. And this year, we have seen very strong traction in US equities among our Singapore clients. Thank you.

Next question today is from Yu Fan from CICC

My first question is regarding the blended commission rate. We see the commission rate increase this quarter. So what's the reason behind? And the second question is about the CAC. So we see the CAC decrease along with quarter. So what's the reason behind? And how do you view the future trend of the CAC?

Thank you. I will take these two questions. For commission rate, the combined take rate is almost on a Q-o-Q basis, slightly up because of the product mixture and more contributions from our -- the virtual products. And then for the CAC, we further optimized our different marketing campaigns channels to control and even decrease our CAC, which -- they are a very strong result in the fourth quarter. And then looking forward and based on the year-to-date situations, we do expect this year, CAC number will decrease compared with last year, hopefully by 10% to 20% year-on-year basis. Thank you.

Thank you. Next question today is from Emma Xu from Bank of America Securities.

So I have two questions. The first one is about the client quality in other international markets. You mentioned earlier about the positive progress in Singapore client quality, but how about other international market? Do you also see improvement in the average client asset? And for your Hong Kong market, with you are penetrating into the mass market, how will the client profile and average client assets change? And the second question is about your trading velocity and trading volume. The trading velocity declined to a record low in fourth quarter, and it is quite understandable that the Hong Kong trading velocity declined due to the weak market. However, US market actually performed quite well in the fourth quarter, but your US trading volume also declined. So how should we think about the connection between the market performance and your trading velocity? Do we see a notable rebound of your trading velocity in the first quarter?

Thank you. I will take your second question first and leave the first question to my colleagues, Daniel. In terms of trading velocity, you're right. The trading velocity stungs in Hong Kong and the US in the fourth quarter. Despite the US stock performed very well in the fourth quarter, but it remains a very strong continuous uptrend for the whole quarters. So most of our clients actually use a buy-and-hold strategy to enjoy the rallies. And the implied volatility in the US markets in the fourth quarter actually went down compared with third quarters. So the trading velocities decreased -- actually, based on our observations is in line with a lot of other US discount brokers' operating matrix as well. Then in the first quarter this year so far, we have seen a very healthy pickup, not only in the US but also in Hong Kong in terms of the trading volume and also the trading velocity. Thank you.

Thank you, Emma. This is Daniel, and I will take your question on decline quality in international markets. Actually, we have seen an improvement in average AUM, not only in Singapore, but also in our other international markets, including the US, Australia and Japan, mostly because unlike some of our other peers, I think, Futu really cares about quality growth. And net inflow of AUM is a key KPI -- very important KPI for all of our marketing teams across different international regions. And in the fourth quarter, we have seen very strong AUM inflows despite weak market sentiments and in the first two months this year, as Leaf mentioned in his opening remarks, we have a higher net asset inflow in the first two months of this year than the entire fourth quarter combined. And actually, over one-third of that net asset inflow comes from international markets. And so we'll expect a continued upward trajectory in our client assets across international markets. And for Hong Kong, in the past couple of quarters, we continue to attract older clients, especially with our off-line store. And we have seen that these clients typically have higher average assets. But because of the large base effect, these new clients didn't change the overall client profile much in Hong Kong. Thank you.

Thank you. Next question today is from Leon Qi from Daiwa.

Thanks for taking my questions. This is Leon Qi. I want to ask two questions today. Firstly, is on our Hong Kong marketing and client acquisition strategy. We've just now management shared a lot of details on Singapore, but I'm interested in Hong Kong now. Given we have a increasing number of client base -- paying client base now, with management's view that going forward it will be increasingly more difficult for us to acquire new customers. Are we considering gradually shifting our focus from the number of customers into average AUM or the quality of our customers? We do appreciate the new customer guidance that management talked about just now -- that Hong Kong new customers' guidance 2024 would be similar to 2023. Second question is on self-clearing in US stocks. May I confirm that all of our trades in US has already been self-cleared. In addition to the positive impact on our net interest income, do we see any improvements in terms of our trading execution efficiencies by using self-clearing. Wondering if we can make any comparisons with our competitors in the US, such as Interactive Brokers, et cetera. Thank you very much.

Thank you, Leon. I'll Leaf to take the first question, and I will answer the second one.

The Hong Kong market is our home base, and in 2023, we continue to maintain very high penetration among the younger clients. And we also steadily improved our penetration into clients from other age groups. As of the end of Q4, our paying client penetration among the adults aged 35 to 55 in Hong Kong was over 10%. And in Hong Kong, our goal is to achieve high-quality growth, and we focus on acquiring high-quality clients and also focus on attracting net asset inflow from existing clients. That's why during Q4 and also in the past where market sentiments were weak, we continued to see very robust net asset inflow from Hong Kong. And going forward, we'll leverage our comprehensive product offerings and have different operational strategies for clients with different asset analysis and different investment needs. And we'll very closely track the net asset inflow trend in Hong Kong. Thank you.

And for the second question, you're right, we have already largely complete the US self-clearing so far. And I think actually the positive contributions from this migration will continue thanks to the increase the client access cohort and also the contribution from the new markets such as Japan and Malaysia. And in terms of the operating efficiency, definitely after the self-clearing capabilities, our service downtimes versus before has been meaningfully decreased and also the trading execution in terms of the reporting et cetera, will be more smooth. Thank you.

Thank you. [Operator Instructions]. Next question today is from Peter Zhang from JPMorgan.

My first question is about the interest income. We noticed that your interest income had been decreased sequentially in first quarter. We wish to understand what's the fourth quarter trend for clients idle cash and Futu's deposit rates? And also, I wish to understand what's the trend in first quarter for clients idle cash balance. My second question is about the operating expense. I wish to understand what is Futu's plan for the headcount increase in 2024 and what's management's guidance for Futu's operating expense increase of, say, cost of income ratio trends? Thank you.

Thank you, Peter. I will take these two questions for four idle cash. Roughly idle cash account for 10% to 15% of our total client assets in the past quarter and also the similar situation happened in the first quarter so far. And the decrease of the interest revenue in the fourth quarter, as I mentioned in the in the opening remarks, is mainly due to the decrease of the average balance decrease for the security borrowing and the lending despite if you see the balance sheet date, the margin and the security lending balance was higher than that in the third quarter. Then for your second half questions, in terms of headcounts, we are looking for mid to high single-digit headcount growth. Mainly will be deployed following international market expansion and further enhance our R&D capabilities. Unfortunately, we do not have a cost income ratio guidance. Given the nature of our business, our revenue is very volatile. It is very difficult to predict due to the market volatility. So we were more focusing on the people side of given this is one of the largest cost components for our overall cost structure. Thank you.

Thank you. And this does conclude the question-and-answer session. So at this time, I would like to hand the conference back to Daniel Yuan for closing remarks. Thank you.

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 representatives. Thank you and goodbye.

Thank you and this does conclude today's conference call. Thank you for participating, and you may now disconnect.