Hello, ladies and gentlemen, welcome to Futu Holdings Second Quarter 2024 Earnings Conference Call. [Operator Instructions]. I would now like to turn this 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 2024 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 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. With that, I'll 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. In the second quarter, we acquired 155,000 paying clients, representing 168% year-over-year growth. By the end of the quarter, we crossed the 2 million paying client milestone translating into a 29% growth year-over-year, and 8% growth quarter-over-quarter. Six months into 2024, we have achieved over 80% of our full year new paying client guidance. Given the strong and year today momentum, we would like to raise our guidance again to 550,000 new pain clients in 2024. New paying clients in Hong Kong and Singapore, both recorded double-digit sequential growth, a mid-market rebound collectively contributing to over one third of paying client growth in the second quarter. In Japan, new paying clients grew by double-digit quarter-over-quarter as we continue to strengthen product offerings, iterate our marketing initiatives and increase our brand awareness. Meanwhile, Malaysia maintained strong momentum and contributed the highest number of new paying clients among all markets to quarters in the role despite sequential deceleration. One major product update is our recent launch of cryptocurrency trading in Hong Kong and Singapore. Compared to some other markets we operate in, we believe that the penetration of crypto in Hong Kong and Singapore helps much room for growth given their supportive regulatory environment, rising awareness of virtual assets and the emergence of more user-friendly virtual asset trading platforms. The adoption curve will not be linear and obviously highly subjective to market sentiments. But when we develop our product roadmap, we think less about short term monetization than offering a broader portfolio with asset classes with low correlation to help our clients navigate market cycles and thus drive higher client wallet share. In terms of our product roadmap for other international markets, in Japan, we are on track to launch NISA…

Thank you, Leaf and Daniel. Please allow me to walk you through our financial performance in the second quarter. All the numbers are in Hong Kong dollars, unless otherwise noted. Total revenue was HKD3.1 billion, up 26% from HKD2.5 billion in the second quarter of 2023. Brokerage commission and handling charge income was HKD1.4 billion of 45% year-over-year and 27% Q-over-Q. The increase was mainly driven by a 69% year-over-year and a 21% Q-over-Q growth in total trading volume. Given our per share pricing model for U.S. stock trading, the blended commission rate increased from 8.1 basis point to 8.5 basis point. As a result, brokerage income grew at a faster rate than trading volume Q-over-Q. Interest income was HKD1.6 billion of 13% year-over-year, and 18% Q-over-Q. The year-over-year and the Q-over-Q increase was mainly driven by high end margin financing income due to an increase in daily average margin balance and the higher interest income from security borrowing and the lending business. Other income was HKD161 million of 27% year-over-year and 3% Q-over-Q, the year-over-year and the Q-over-Q increase was both primary attributable to higher funded distribution income, while the Q-over-Q increase was partially offset by the decline in underwriting fee income. Our total costs were HKD574 million increase of 53% from HKD375 million in the second quarter of 2023. Brokerage commission and the handling charge expenses were HKD87 million, up 58% year-over-year and up 45% Q-over-Q. The expenses grow by a wider margin than income sequentially, mainly due to the cap fee scheme for U.S. stock trading. Under the per share pricing model, we charge a maximum of 58 basis points of trading volume per order for U.S. stock trading. So when client trade a more low-priced [me stock], as was the case in the second quarter, there…

[Operator Instructions] First question comes from the line of Cindy Wang from China Renaissance. [Foreign Language] Thanks for taking my call. I have two questions. One question is related to crypto services. So recently you have launched, the crypto services in Hong Kong and Singapore. Could you provide some color on client feedback on crypto trading? And what's your client acquisition strategy? Second is, basically now is around two months for the third quarter. So can you give us some lately trend for the third quarter, including like trading volume, trading velocity, AUM and margin financing and security lending balance.

[Foreign Language] For the second quarter today, we -- what we witness is still very robust client asset inflows. Despite there will be some negative impact implications from the market-to-market loss due to the challenges that we face in Hong Kong markets. And in terms of clients trading turnover velocity and also the trading volume, et cetera, we both seen that these indicators remain very strong and have a sequential Q-on-Q increase. In terms of the commission rate, given that we got some benefit in the second quarter in line that a lot more clients are trading these low-value mid-stock which give us some positive uptick in terms of the take rate. So such benefit will become normalized in the third quarter so far. Thank you very much.

[Foreign Language] We launched cryptocurrency trading in Hong Kong and Singapore on August 1 and August 12, respectively, and we now offer a limited number of mainstream trading pairs. So far, we have a number of clients that have activated their cryptocurrency trading accounts, because we offered the product not long ago. And because recently, the cryptocurrency market experienced very significant pullback and fluctuation. The clients trading volume of cryptocurrency and client assets are both pretty small in comparison to the scale of the whole business. Right now, our focus is to continue to enhance our product capabilities and continue to provide investor education and operations to further enhance our value proposition as a one-stop asset allocation platform. Thank you.

And the next question comes from the line of Chiyao Huang from MS.

[Foreign Language] So I got 2 questions. One is on the -- could management provide more color on the Q-on-Q increase in client assets. How much is the inflow and how much is mark-to-market driven. And in particular, where the inflows are coming from in terms of the geographic mix in 2Q? And second question is on the Japanese client acquisition. Do we see any acceleration trend in the second quarter compared to the first quarter? And how is the trend in 3Q going so far right now. And also, what's the -- currently the [ preclient ] assets in Japan and where the clients are putting their money at in Japan.

I will take your first question, and I will leave the second question to my colleagues, Daniel. [Foreign Language] Now in terms of the benefit from our total client assets increased in the second quarter, our total client assets increased by 12% Q-over-Q. And to break it down, majority of the contribution actually comes from the client asset inflows in terms of the top of their accounts on cash or stock transfer which accounts for roughly to high single-digit contribution and the remaining 2% to 3% belongs to the to market positive benefit. And Hong Kong and Singapore, both these are 2 key markets in terms of the contribution of new asset inflows, which roughly accounts for 80% of our total net asset inflow.

[Foreign Language] So overall, in the second quarter, we saw a very robust net new paying clients in Japan actually recorded a very decent quarter-over-quarter growth. And in terms of the absolute number of paying clients contributed, so Japan and Malaysia are in the first tier. So we were very happy with what we saw in Japan in the second quarter. And at the quarter end, we had close to 800,000 users, which we think is also a very healthy growth. And previously, we gave the guidance of having 1 million to 1.5 million users in Japan by year-end, and we're still very confident about that guidance. So in terms of driver for new paying client growth, 2 things. First of all, it's just to continue to roll out a new product. So in comparison to some of the mainstream players in Japan, we still lack a couple of very key financial products. And as Leaf mentioned in his opening remarks, we have a plan to offer those products in the next couple of months. And secondly, brand building is also important, as we've realized, and a lot of investors are aware right now, Japan users usually take a bit more time to trust the brand, especially a brand from overseas. So that's why we'll continue to invest in our brand, and that's also why we did a power lounge and had a brand ambassador in the second quarter, these all contributed to a higher brand equity, and we'll continue to invest in brand building. And in terms of average client assets right now, it's a couple of thousand U.S. dollars and mostly clients still allocated into U.S. stocks. Although the percentage of assets in Japan stock and the percentage of trading volume from Japan stock have been increasing, and we believe that as we continue to enhance our Japan stock product offering, these percentage contribution will continue to go up closer to the market level. Thank you.

And the next question comes from the line of You Fan from CICC.

[Foreign Language] I've got 2 questions. The first question was our plan for new product offerings, any product pipeline, especially in new markets like Japan and Malaysia. And the second question, what's our progress of the share repurchase program.

[Foreign Language] So in terms of the product pipeline for Japan, as Leaf mentioned earlier, a couple of very important financial products for us and also what we intend to roll out in the next couple of months, include number one, the NISA savings accounts; and number two, mutual funds; and thirdly, U.S. margin financing. And for Malaysia, I think we've kept a very nice pace of new product rollout. And in the third quarter, quarter-to-date, we've actually rolled out Malaysian stock IPO subscription services and also the cash plus product, which is a money market product. And from our experience, when the IPO market is very hot, usually IPO subscription service can be a good contributor of new client growth. And during the high rate environment, money market products can help increase client assets. And in terms of future product pipeline in Malaysia, we plan to roll out this quarter, the stock transfer for Malaysian stocks so that we can attract existing clients and other brokers in Malaysia.

[Foreign Language] Our existing share repurchase program actually will cover 2024 and also 2025. So far, we have not exercised this program yet. We will keep you and also other analysts and investors, our shareholders on post if we exercise any of -- if we exercise any of them.

The next question comes from the line of Zoey Zong from Jefferies.

[Foreign Language] I have 2 questions. First, what's the business model of your crypto series? And second, we have seen that interest expenses increased by 21% sequentially in Q2. Wondering what's the reason behind? And how should we think about the trend going forward?

[Foreign Language] In terms of the interest expenses increase in the second quarter, which I think is mainly associated with our clients, margin financing and the stock borrowing. In particular, in terms of stock borrowing the pricing -- the implied interest rate is more relied on the market driven demand and the supply situation which is very hard to give a precise estimation and very difficult to project. And if I just assume the status -- as the status quote, if our penetration rate of our retail clients to continue in con in the store borrowing universe I think the expenses associated with such activities, revenue on the top line will both further increase.

[Foreign Language] So for cryptocurrency trading since we now only offer the trading services, the business model is very straightforward as we charge a commission. And when we designed our pricing scheme, we want to balance our market competitiveness and monetization potential. So right now in Hong Kong and Singapore, we both work with an upstream provider to offer cryptocurrency trading. And under our current pricing model, taking into consideration the upstream cost, we still enjoy pretty good gross profit margin. So the net take rate of cryptocurrency trading is higher than the net take rate for Hong Kong and U.S. stock trading. Thank you.

And the next question comes from the line of Emma Xu from Bank of America Securities.

[Foreign Language] So I have 2 questions. The first question is about the client acquisition. You just raised your full year new paying client target to 550,000, which means you need to acquire around 108,000 new paying client per quarter. And usually your client acquisition is seasonally low in fourth quarter. That implies your first quarter client acquisition is still quite strong. So could you tell us which markets are driving your client growth in third quarter? And the second question is about -- is that given the rising expectations of red cards and then the recent wild volatilities in the AI stock. So do you see the changes in client asset allocation say, between the stocks, the bones and the options, et cetera? And then in terms of the allocation within the stock say from the AI growth stock to value stock? And how will this changing behaviors impact your take rate and correspondingly, given the rising expectation of record, how will it impact your interest income? I know it could probably have limited impact on your interest income this year, but what would be, say, the 25 bps RevPAR impact on your interest income next year?

[Foreign Language] In terms of the guidance for new client acquisition, as Leaf mentioned in the opening remarks, we have already revised our targets to 550,000 new paying clients for the whole year. And in the second quarter, major contributions for the new clients acquired is number one is the Hong Kong and Singapore, which contribute over 1/3 of our new paying clients acquired in the second quarter. And the combined Japan and Malaysia, which accounts for roughly 40% for the whole pie. And based on the quarter-to-date situations, we are still very confident we can achieve the guidance we mentioned before despite there can be some uncertainties coming -- arising the U.S. election in the fourth quarter. And we do expect contribution breakdown from the -- from these markets should be similar to what we have witnessed in the first half of this year. And of course, for the second question, of course, we got some negative implications from the rate cut. We have some preliminary sensitivity estimations. Every 25 basis point rate cut, our pretax profit, operating profit will be impacted by HKD5 million to HKD8 million, if we did not account any positive -- potential positive implications from the market trading volume increase because of the rate hike and also the benefit from the new client acquisitions for these implications. And so far, we have not witnessed a very significant client asset allocation changes arising from your observations. But in the wealth management universe, we do witness there will be more asset allocations by our clients on the fixed income products, including the treasuries and also fixed short duration fixed further, et cetera.

And the next question comes from the line of Charles Zhou from UBS.

[Foreign Language] So first of all, congratulations to the management team. I think it's a very strong set of results and also above the consensus. So my question is regarding to the client acquisition costs because I think this is very well managed. So do we -- so do we have any updates for the 2024 for the full year guidance? And if you don't have any new guidance or any updates, we believe there's also a decent huge upside from here as well. So could you please also share your marketing and also client acquisition strategy in several of the key markets in the second half? My second question is related to the interest income. Our understanding there are 3 major components: idle cash interest income, margin financing and stock lending interest income as well as the IPO financing income. So could you please just help us to split the interest income from these 3 components for the second quarter?

[Foreign Language] For your 2 questions. Number 1 is about the CAC guidance, any update. In the second quarter, our CAC is around HKD2,200, which have 30% Q-over-Q increase versus Q1, which has a very -- relatively very low base because of the significant contribution of new clients acquired in Malaysia. We think the situation just be normalized in the second quarter. And for the third quarter for today, I think in terms of CAC, we still maintain it's -- in a relatively low level, which is below our guidance range HKD2,500 to HKD3,000 for the whole year. On relatively speaking, I will become more constructive in terms of the CAC guidance. Based on the current run rate, I think it will be very likely locate in the low end of our range or even lower than this range for the whole year. Then the breakdown of the interest income because of the market changes in Hong Kong and in the U.S., the interest income deriving from the IPO financing both in Hong Kong and in the U.S. is not material and clients idle cash and also the margin financing almost contribute equally in terms of the interest income breakdown despite I feeling -- my feeling is the interest income from idle cash were slightly higher than the second half. Thank you very much.

And the next question comes from the line of Peter Zhang from JPMorgan.

[Foreign Language] Let me do the translation. Many thanks for management giving me the opportunity to ask the questions. This is Peter from JPMorgan. I have 2 questions. My first question is on Malaysia business which management could give us more details on the progress of the Malaysia business. For example, the client asset inflow, average current asset current profile and current trading turnover? And what's the outlook of the Malaysian business. And my second question is about the Airstar Bank. I understand Futu to invest 40% shares into the Airstar Bank in June. We wish to understand what the rationale behind this investment and going forward what Futu’s strategy to cooperate with this virtual bank in Hong Kong.

[Foreign Language] Now I think the key -- we think the key motivations for the reason for we to consider to do these investments. Number one is we continue to get a lot of requests or suggestion from our users and the clients. In the past several years in Hong Kong, given more and more our [ hotlines], met a lot of pinpoints in terms of the fund transfer to the brokerage accounts. And secondly, of course, we do think in terms of our future strategic direction, there will be a lot of synergy and also same scenarios between the brokerage business, wealth management business in Futu and also the retail banking business and also high net worth wealth management business normally provide by the bank. So far, the deal was just completed in the second quarter. We work strive very hard and work very closely with the local management of the Airstar Bank alongside with Xiaomi and other shareholders, Airstar to align our long-term strategy. Having said that, I think the near-term focus will be more on Futu itself, especially how to contribute our R&D capabilities and the technology capabilities to further [indiscernible] and enhance the infrastructure of the commercial -- of Airstar Bank's products.

[Foreign Language] So in terms of our client profile, given our value proposition as a one-stop trading platform for Malaysia and the U.S. stocks, so far, the clients we have attracted have some level of investment experience, and most of them are young Asian mails and have a higher income level than the country [indiscernible]. And also, we've seen that the trading turnover of our Malaysian clients are meaningfully higher than the group average. So given the ARPU and CAC numbers we have seen in the second quarter, we think the payback period of Malaysia is better than when we first launched in Singapore. As of the end of the second quarter across our different cohorts in Malaysia, net asset inflow, average client assets all were trending month-over-month and average client assets was actually up 45% Q-on-Q. And as our average client assets in Malaysia continue to increase, we believe the unit economics will continue to improve. So in terms of the second quarter client acquisition in the third quarter, quarter-to-date trend, so the second quarter net new paying clients was down a bit sequentially, mostly because of a high base in the first quarter. That's when we were able to convert a large number of our existing users into paying clients. But apart from that, the second quarter growth was very steady Q-on-Q. And we believe the strong momentum is partially due to the spillover of our brand equity accumulated in Singapore and also because of our leading product capabilities as a one-stop platform for Malaysian U.S. stocks and also the strong market sentiment in the second quarter also helped with client acquisition. In the second quarter, we launched Malaysian stock IPO subscription and also automatic investment schemes for U.S. stocks and fractional shares for U.S. stocks. And for the third quarter, quarter-to-date, we launched money market funds and also stock transfer from Malaysian stocks. And for the third quarter, we expect a steady quarter-over-quarter new paying clients growth in Malaysia.

And the next question comes from the line of Hu Shen from CLSA.

[Foreign Language] What is the share of trading and media in trading total U.S. trading volume? How did this single factor influence the commission rate in second quarter? How big was the influence from mid-cap stock trading? What is a good indicator to track the change in U.S. stock trading commission rate change? And what is the fee rate in the distribution of phone, [indiscernible]. And what could be a good timing for considering issuing dividends.

[Foreign Language] In terms of your first question, [indiscernible] roughly accounts for our 20% to 30% of our clients' U.S. stock trading volumes in the second quarter. And for your second question, so far, we do not have any concrete dividend policy. The key reason is we think still there were huge growth potential areas which we can further deploy our capital. And we are very confident these investments will generate more higher returns which then -- which is higher than our cost of capital. And in terms of the economics of the fund distribution or treasury trading, et cetera, which I think to some extent related to some confidentiality commercial arrangement. But the only thing I can -- but the thing I can share is the arrangement is very typical, similar to the industry distribution model. Thank you.

Due to time constraints, I would now hand back to Daniel Yuan for any closing remarks. Please go ahead.

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.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.