Futu Holdings Ltd. (Nasdaq: FUTU), a leading tech-driven brokerage in China, reported positive results last Wednesday for 2019 and for the fourth quarter ending December 31. Top executives also made the case in an earnings call for strong growth in 2020, despite the effects of the Covid-19 crisis. All this seemed to point the way to continued expansion. Yet shortly after the earnings call the morning of March 18, investors drove the FUTU share price down 21.7 % from the previous day to close at $8.89 on NASDAQ. The precipitous plunge raised questions about FUTU’s prospects and the confidence of its investors.
There is ample reason, however, that the company, backed by tech giant Tencent Holdings Limited, experienced a dip in its share price due to overall market panic rather than company-specific shortcomings, fears of a sharp global economic downturn caused by sky-rocketing growth of Covid-19 cases in most of the world.
One indication that selling went too far was that FUTU’s price stabilized on March 19 and 20. In addition, positive results announced by the company painted a picture of solid growth for the company. Among encouraging results for 2019, total revenues rose 30.9% to US$136 million, and net income gained 19.6% to US$21.3 million.
Hua Li, FUTU founder and CEO, said on the call that the number of added paying clients in the fourth quarter exceeded expectations from the end of 3Q. “In 2020, we are aiming for 45% growth in the number of paying clients,…” pushing the total number to over 285,000. The CEO added that in light of the Covid-19 crisis, many traditional financial institutions had to suspend operations., underscoring the advantage of FUTU’s 100% online one-stop financial approach. Another promising area, according to Mr. Li, will be increasing reliance on AUM-based income, with more client assets going into Futu’s mutual fund business. Total client assets soared 71% in 2019 to HK$87.1 billion (US$11.2 billion). Arthur Yu Chen, CFO, said 15 new mutual funds products would be launched before the middle of this year.
Mr. Chen also said growth should be strong in derivatives operations, especially following recent additions of Hong Kong Option Trading and Index Future Products in Hong Kong. He said increased derivatives trading contributed to a rise of 6.7 basis points in FUTU’s blended commission rate in 4Q of 2019. Brokerage, commissions and handling charges made up around 49% of total revenues in that quarter. The earnings call did sound a few notes of caution regarding growth. For example, Mr. Chen acknowledged that recent interest rate cuts would hurt profitability. He also said a healthy rise in AUM growth in January and February this year turned into a sizeable downturn in early March due to market volatilities as investors redeemed money market funds to average down their stock positions. However, despite some dark clouds, broad-based growth in 2019 indicates that FUTU has a foundation for medium and long-term gains. This is especially true as China appears to be emerging from the Covid-19 well ahead of the US and Europe.
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