Hello, ladies and gentlemen. Welcome to Futu Holdings Third Quarter 2024 Earnings 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. 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, Head of Strategy and IR at Futu. Please go ahead, sir.

Thanks, operator, and thank you for joining us today to discuss our third 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 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. With that, I will now turn the call over to Leaf. Leaf will make his comments in Chinese, and I will translate.

[Foreign Language] [Interpreted] Thank you all for joining our earnings call today. We wrapped up the quarter with 154,000 net new paying clients, up 138% year-over-year and flattish quarter-over-quarter. Our total paying clients reached approximately 2.2 million, up 33% year-over-year. Three quarters into 2024, we have acquired 487,000 paying clients, and we expect full year growth to comfortably exceed our guidance of 550,000, thanks to resilient growth in established markets and strong momentum in newer ones. [Foreign Language] [Interpreted] As we continue to iterate on various client acquisition strategies and launched effective campaigns amid elevated market sentiments, client acquisition accelerated in Hong Kong and Singapore, which collectively contributed to over one-third of new paying clients. Three quarters in a row, Malaysia remained the top contributor of new paying clients among our southern markets. We're committed to further elevating our brand image in Malaysia and we've broadened product offerings to enhance our value proposition as a one-stop investment platform. In Japan, we made steady progress on client acquisition despite dwindling interest in Japan equities among retail investors amid market pullback in the third quarter. [Foreign Language] [Interpreted] In terms of new product offerings, we rolled out U.S. stock Dividend Reinvestment Plan in Hong Kong, we launched NISA savings account and mutual funds in Japan, and recently supported U.S. margin trading and Japan options trading, which started to gain decent traction among our clients. In Malaysia, we rolled out ringgit and USD denominated money market funds. We also became the first broker in Malaysia to offer U.S. options trading. [Foreign Language] [Interpreted] Total client assets grew 48% year-over-year and 20% quarter-over-quarter to HK$693 billion. The sequential increase was due to strong net asset inflow across markets and to a greater extent, the appreciation of client stock holdings in the China equity surged…

Thank you, Leaf and Daniel. Please allow me to walk you through our financial performance in the third quarter. All the numbers are in Hong Kong dollar, unless otherwise noted. Total revenue was HK$3.4 billion, up 30% from HK$2.7 billion in the third quarter of 2023. Brokerage commission and handling charge income was HK$1.5 billion, up 52% year-over-year and 11% Q-over-Q. The increase was mainly driven by a 75% year-over-year and 70% Q-over-Q growth in total trading volume, partially offset by the decline in blended commission rate as our client gravitate towards higher-priced stocks. Our blended commission rate went down from 8.5 basis point to 8 basis point Q-over-Q. Interest income was HK$1.7 billion, up 13% year-over-year and 7% Q-over-Q. The year-over-year increase was mainly driven by higher margin financing income due to increase in daily average margin balance and the higher interest income from security borrowing and the lending business. The Q-over-Q increase was mainly driven by the growth in bank deposit interest income and the margin financing income. Other income was HK$209 million, up 52% year-over-year and 30% Q-over-Q. The year-over-year and Q-over-Q increase was both primarily attributable to higher fund distribution income and higher currency exchange income. Our total cost was HK$625 million, an increase of 43% from HK$437 million in the third quarter of 2023. Brokerage commission and handling charge expenses were HK$82 million, up 30% year-over-year. Brokerage expenses grew by a narrow margin than brokerage income year-over-year, mainly due to cost saving from our U.S. self-clearing business. Interest expenses was HK$414 million, up 43% year-over-year and 10% Q-over-Q. The year-over-year and the Q-over-Q increase was mainly driven by higher interest expenses associated with our security borrowing and the lending business. Processing and servicing costs were HK$130 million, up 51% year-over-year and 19% Q-over-Q. The year-over-year…

Thank you. [Operator Instructions] And the first question comes from the line of Cindy Wang from China Renaissance. Please go ahead. Your line is now open.

[Foreign Language] So, thanks for taking my question. I have two questions here. First, since the China asset rose in -- since the end of September, so based on current run rate in fourth quarter, can you give us some color on the Hong Kong stock trading volume and ADR trading volume as a percentage of your total trading volume? And would that help your overall blended commission rate in fourth quarter, and also, the new customer acquisition in Hong Kong? Second question is related to crypto. Can you give us some color on the crypto development in third quarter? And will the Bitcoin price rally since October would help your overall [transaction amount] (ph) and the new paying client? And also, could you give us update for the VATP license in Hong Kong? Thank you.

Thank you, Cindy. Let me answer your second question about crypto, and I will leave the first question to my colleague, Daniel. [Foreign Language] In terms of the updates of VATP license, we are still in the process of being reviewed by the regulators in terms of some on-site visits and for their inquiries. Hopefully, we can give the market some update in the near futures. And as Leaf mentioned in the opening remark, we have already launched our crypto business in the third quarter in Hong Kong. Given the recent data, we think the penetration of the users and also the trading volumes pick up very, very meaningfully. Now, I think the daily average trading volumes on the crypto assets in Hong Kong was in the range of US$10 million to US$20 million every day. And I do think the penetration and the trading volume will continue to keep current momentum. And considering the recent rallies on the digital assets, it would definitely give us positive help in our new client acquisitions in Hong Kong recently.

[Foreign Language] So, in late September, early October, the trading volume and the percentage of trading volume of Hong Kong stocks and China ADRs experienced a rapid surge. And as Leaf mentioned in his opening remarks, the trading volume contribution of Hong Kong stocks and China ADRs altogether exceeded over 50% at some point. And later on, as a lot of China assets experienced pullback, both numbers experienced some sequential decrease, but overall, it is still much stronger than what we've seen in the third quarter. So, in the first -- in the fourth quarter so far, the U.S. equities have performed very well, especially around the U.S. election. Some of the technology names that our clients are particularly fond of experienced rapid surges. So, overall, in the fourth quarter, we have seen a very meaningful sequential increase in our U.S. stock trading volume. And as for the blended commission rate, as you are aware, there are a number of factors that affect our blended commission rate. In the fourth quarter so far, we have seen a mild pullback in the commission rate, mostly because the trading volume increase of our cash equities increased at a faster pace than derivative, which brought a slight decline in blended commission rate. And in terms of client acquisition, quarter-to-date, we have seen an increase in our new paying clients. And that increase is primarily attributable to our Hong Kong client acquisition, mostly because the Hong Kong stock and China ADRs performed very well in October -- in early October and had experienced continued volatility, which helped with client acquisition. Thank you.

Thank you. We will now take our next question. Please standby. And the next question comes from the line of Chiyao Huang from MS. Please go ahead. Your line is now open.

[Foreign Language] So, I got two questions. One is about the thinking around the special dividend, especially how to put that into context with the growth potential in overseas market and also the related investments in these markets. And will we have a more recurring shareholder return plans in the next, say, two to three years? The second question is on the sales and marketing expense. So, just wondering what portion of sales and marketing expense should be more fixed in nature and what portion should be more variable and depend on the client acquisition number? So, what should we expect for the [fixed budget] (ph) to grow in 2025 given [our plan] (ph) in the different overseas market? Thank you.

Thank you, Chiyao. Let me answer your first questions about the special dividend. And I also will leave the second question to Daniel. [Foreign Language] As you may be aware, Chiyao, this year, in particular third quarter is a very special moment for Futu. A couple of weeks ago, we just celebrated our 12th anniversary of Futu. And this is also the fifth anniversary since the inception of our IPO in 2019. We very -- pay attention to the shareholder reward and the shareholder values. Since 2021, we have set a series of share repurchase programs to demonstrate our commitment to the shareholder values. Considering this year is the fifth anniversary of our listing, we want to take this opportunity to express the gratitude to our long-term shareholders in the past. This is the major rationale for this special cash dividend payout. And the total size for this cash dividend amounting to US$280 million, which accounts to 7.8% of total net equities as the end of the third quarter. Considering our balance sheet and also our cash on hand, we think this size is appropriate and there will be no any negative implications to our client acquisitions, our current operations afterwards. As to whether we will set up more visible dividend payout policies, we will make the revisit in next years after taking into account the market conditions and our future business development. Thank you very much.

[Foreign Language] So, among our sales and marketing expense, over 50% is salary related, which can be interpreted as more fixed in nature and the rest is marketing related. And as we've passed the initial rapid expansion phase in a couple of new markets this year and as we have no imminent plans to launch in any new markets next year, so overall, from a headcount perspective, I think we'll be relatively disciplined next year. And the marketing expense will depend on a variety of external factors. So, in our fourth quarter earnings call in March next year, we'll give out more guidance. Thank you.

[Foreign Language]

Thank you. We will now take our next question. Please standby. And the next question comes from the line of You Fan from CICC. Please go ahead. Your line is now open.

[Foreign Language] Thanks management for taking my question. This is Yoyo Fan from CICC. And I have two questions here. The first one is regarding the AUM breakdown. How much is from the clients' net asset inflow and how much from the market-to-market appreciation? And what's the regional breakdown of the client assets? The second question is about breakdown of the current interest income. And also, would you please share more color on the impact of the interest rate cut on our net interest income? Thank you.

Thank you, Yoyo. I will answer your second question about the interest income breakdowns, and I will leave the first question to Daniel. [Foreign Language] In terms of the interest income breakdown, the structure is almost similar to the patterns in the second quarter. The interest income from our current idle cash roughly accounts for 40% to 45% of our total interest income, and the remaining part mainly goes to the margin financing and the stock borrowing, lending et cetera. There is no update in terms of the sensitivity implications from the federal rate cut. In the third quarter, what we observed is that given a lot of clients locking their profit in the third quarter end, the absolute amount coming from the idle cash become bigger, which partially offset the negative implications of the rate cut in the U.S.

[Foreign Language] So, in terms of our client assets growth in the quarter, over half of that comes from market appreciation of our client assets, especially towards the quarter-end when China equities performed exceptionally well. So, in the third quarter, overall net asset inflow remained very robust. So, the number trended down a bit sequentially, given the high base in the second quarter, but still well exceeded the first quarter numbers. And in terms of the breakdown between different geographies, Hong Kong market still contributed the majority of our net asset inflow, followed by Singapore. And three quarters in a row, we have seen overseas markets contributed to over HK$10 billion in net asset inflow, and we are very optimistic about the sustainability of net asset inflow from overseas markets. Thank you.

[Foreign Language] Thank you.

Thank you. We will now take our next question. Please standby. And the next question comes from the line of Charles Zhou from UBS. Please go ahead. Your line is now open.

[Foreign Language] So, first of all, congratulations to the management. I think it's a very solid set of results. I have a follow-up question regarding the special dividend. I think we know the shareholders, right, so you have the buyback and also the dividend. So, what's the rationale behind of giving the dividend now? And how do you see -- so do you prefer buyback or dividend going forward? So -- and what factors do you consider when you determine the buyback or the dividend? And what do you feel the investor will prefer currently? My second question is that compared with the Visible Alpha consensus, we're glad to see the top-line is a 4% beat, but net profit is just largely in line. We also noticed there's one item of other costs and loss of HK$131.4 million, which is not small. So, for management, also would you please clarify -- so what is -- so could you please clarify for this item? And will this also affect your net profit going forward? Thanks.

Thanks, Charles. I will take these two questions. [Foreign Language] Regarding the special dividend, actually we will use a combination of share buyback and also cash dividend. When we touch base with our investors, we do notice there are specific group of the potential investors do care the cash dividends, which give more visibilities of the cash inflows. So, going forward, actually, we will take into account the different demand from different shareholders in order to demonstrate our commitment to create shareholder value to all of our shareholders. Then, regarding the breakdown of others, the nature behind that is mainly due to the unrealized foreign exchange loss arising from the RMB appreciations versus U.S. dollar and also the fluctuations of Singapore dollar versus the U.S. dollar, both of which are all non-cash items. So, if we -- judging by the current FX rate, the majority part of the others in the third quarter will be reversed in the fourth quarter. So, if we take this -- the noise from the operation part, just focusing our key operating profit and also the top-line, I think the growth -- the trend between the top-line and the operating profit is almost in line. Thank you very much.

[Foreign Language] Thank you. Very clear.

Thank you. We will now take our next question. Please standby. And the next question comes from the line of Emma Xu from Bank of America Securities. Please go ahead. Your line is now open.

[Foreign Language] So, I have two questions. The first question is about the strategy in your major market. So, you mentioned that you don't have plans for new markets next year, so probably we'll focus on existing markets. Hong Kong, Singapore, Malaysia are doing well. And this quarter, you also emphasized that U.S., Canada and Australia's average client asset all recorded double-digit sequential growth for three consecutive quarters. So, what have you changed to the strategies in these major markets so that you see the improvement in the client quality, or is it majorly driven by the market appreciation especially in the U.S. market? And the second question is that there are lots of macro events recently, including the Fed rate cut, the stimulus policies from China and the U.S. election. So, do you see some meaningful changes in investors' trading behavior and asset allocation?

[Foreign Language] [Interpreted] And to briefly translate my two answers, maybe I'll take your second question first, given that's a little similar to the answer we had -- gave out earlier. So, in terms of our trading volume mix, we saw a surge in the percent of trading volume contributed by Hong Kong stocks in China ADRs in late September and early October, and then the percentage pulled back a bit given the performance of China equities also pulled back, but overall, the percentage increased quarter-over-quarter. And in terms of U.S. stocks, the U.S. stocks have been generally performing very well fourth-quarter-to-date. Especially around U.S. elections, some of the technology stocks and virtual asset stocks performed exceptionally well and boosted the overall U.S. stock trading volume. And to your first question, you touched on a number of markets and it's hard to give a concise answer on our earnings call. I'm happy to chat more offline. But just to summarize, I think just over time, we have a better understanding of our business. We have a better understanding of our capabilities. And also, we've developed better understanding of each and every one of these markets and the client demand. So, we don't have a one-size-fits-all approach towards all of our Southern markets, but instead we focus on learning more about users. We develop unique product pipelines. We have different marketing messages. We emphasize on different unique selling points, and we have different client operations strategies. So, overall, I think we'll continue to iterate based on our understanding of each of these seven markets. Thank you.

Thank you. As there are no further questions, I would now like to hand back to Daniel Yuan for any closing remarks.

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.