Hello, ladies and gentlemen, welcome to Futu Holdings First 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 question-and-answer 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 and Head of IR at Futu. Please go ahead, sir.

Thanks, operator, and thank you for joining us today to discuss our first 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 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. Supported by strong market performance and effective execution in new markets, we concluded the quarter with about 1.9 million paying clients, which is a 24% increase compared to the previous year. In the first quarter, we gained 177,000 paying clients, more than quadrupling the number from the same quarter last year, and achieving the third highest quarterly growth ever. Within the first three months of the year, we have already met over 50% of our full-year guidance of 350,000 net new paying clients. Due to our momentum this year, we are raising our guidance to 400,000 for now. Despite our rapid client base expansion, our quarterly paying client retention rate has remained over 98%. Client acquisition in Hong Kong and Singapore grew at a double-digit rate, although their contribution to new paying clients has decreased to around one-third while other markets experienced strong triple-digit growth. In Japan, our ongoing efforts to enhance product experience and streamline the account opening process, along with targeted marketing strategies, have resulted in substantial growth in new paying clients and average client assets. Additionally, our Moomoo App has been well received in Japan, with cumulative downloads reaching 1 million in May. In Malaysia, our leading trading experience, comprehensive market information, interactive community, and strong brand equity have driven growth above expectations. Client engagement and trading activity exceeded our forecasts. Within six weeks of launching our brokerage operations in Malaysia, we attracted over 100,000 registered clients and became the most downloaded financial app. Even though client acquisitions have slowed in the second quarter, we anticipate a significant contribution from Malaysia for the remainder of the year and are dedicated to maintaining and expanding our market leadership. We have an extensive pipeline of new products and features in all markets. In late March, we initiated Japan equities trading in Japan and followed this up with launches in Hong Kong and Singapore in April. We also plan to introduce fractional shares trading, NISA savings account, margin trading, and mutual funds in Japan in the coming quarters. Furthermore, we'll begin offering crypto trading in Hong Kong and Singapore, expecting significantly higher take rates than for equities trading. In Australia, we recently introduced fractional shares, options, and recurring investments for US stock trading. In Canada, we launched self-directed registered retirement savings plans, tax-free savings accounts, and US options trading, and will soon offer Hong Kong stock trading. Total client assets rose by 11% year-over-year and 7% quarter-over-quarter to HKD518 billion. We continue to observe strong asset inflows across all markets, which more than counterbalance the impact of market depreciation in several technology stocks on clients' Hong Kong stock holdings. In Singapore, total client assets and average client assets increased by 25% and 15% sequentially, respectively, driven by strong net inflow in equities and cash management products. Total trading volume showed a significant rebound, increasing by 40% quarter-over-quarter to HKD1.3 trillion. In Hong Kong, trading volume rose by 18% sequentially to HKD280 billion. Clients displayed a heightened interest in technology and high-dividend stocks, as well as leveraged and inverse ETFs. The high trading turnover of crypto and AI-themed stocks contributed to a 48% sequential increase in US stock trading volume to HKD1 trillion. The margin financing and securities lending balance grew by 14% sequentially to a record high of HKD38 billion. Total client assets in wealth management were HKD64 billion, marking a 73% year-over-year and 11% quarter-over-quarter increase. In the first quarter, bond holdings increased by 21% sequentially, benefiting from strong inflows in US treasury bills. In Singapore, wealth management asset balance experienced a remarkable growth of 356% year-over-year and 37% quarter-over-quarter as money market funds gained popularity. To meet demand for high dividend yield, we launched a fund portfolio featuring a strategy focused on high dividend stable allocations. As of the end of the quarter, we had 430 IPO distribution and investor relations clients, an increase of 22% year-over-year. More than 1,200 companies have set up enterprise accounts in our social community to engage with retail investors. Next, I'd like to invite our CFO, Arthur, to discuss our financial performance.

Thank you, Leaf and Daniel. Please allow me to walk you through our financial performance in the first quarter. All the numbers are in Hong Kong dollars unless otherwise noted. Total revenue was HKD2.6 billion, up 4% from HKD2.5 billion in the first quarter of 2023. Brokerage commission and handling charge income was HKD1.1 billion, up 20% quarter-over-quarter and largely flat year-over-year. With client trading interest piling onto AI and crypto-themed stocks with high stock prices, the blended commission rate decreased from 8.8 basis points to 8.1 basis points due to our per share pricing model in the US. As a result, brokerage income grew at a slower rate than trading volume, both quarter-over-quarter and year-over-year. Interest income was HKD1.4 billion, up 5% year-over-year and 1% quarter-over-quarter. The year-over-year increase was mainly driven by higher margin financing income due to an increase in daily average margin balance and higher interest income from bank deposits. The quarter-over-quarter increase was mostly driven by higher interest income from bank deposits due to the increase in daily average idle cash balance. Other income was HKD156 million, up 24% year-over-year and 14% quarter-over-quarter. The year-over-year increase was primarily attributable to higher fund distribution income and the quarter-over-quarter increase was mainly driven by higher currency exchange income. Our total costs were HKD417 million, an increase of 62% from HKD291 million in the first quarter of 2023. Brokerage commission and handling charge expenses were HKD60 million, down 17% year-over-year and up 2% quarter-over-quarter. Brokerage expenses didn't move in tandem with brokerage income year-over-year, mainly due to cost savings from our US self-clearing business. The expenses grew at a narrower margin than income sequentially due to a non-recurring cost associated with self-clearing migration of Singapore stocks during the fourth quarter of 2023. Interest expenses were HKD313 million, up 139% year-over-year and 16% quarter-over-quarter. The year-over-year increase was driven by higher interest expenses associated with our securities borrowing and lending business. The quarter-over-quarter increase was mostly due to a similar reason, partially offset by lower margin financing interest expenses. Processing and servicing costs were HKD97 million, up 11% year-over-year and down 6% quarter-over-quarter. The year-over-year increase was largely due to higher product service and data transmission fees for new markets. The quarter-over-quarter decline was mainly driven by lower market information and data fees as well as lower product service fees. As a result, total gross profit was HKD2.1 billion, a decrease of 4% from HKD2.2 billion in the first quarter of 2023. Gross margin was 81.9% as compared to 88.4% in the year-ago quarter. Operating expenses were up 16% year-over-year and 2% quarter-over-quarter to HKD930 million. R&D expenses were HKD336 million, down 5% year-over-year and 7% quarter-over-quarter. The year-over-year and the quarter-over-quarter decrease were largely due to stricter cost control. Selling and marketing expenses were HKD293 million, up 107% year-over-year and 6% quarter-over-quarter. The increase was driven by our triple-digit year-over-year and quarter-over-quarter growth in net-new paying clients, partially offset by lower client acquisition costs. G&A expenses were HKD301 million, down 2% year-over-year and 19% quarter-over-quarter. The year-over-year decrease was mainly due to lower professional service fees and the quarter-over-quarter decrease was due to stricter cost control. As a result, income from operations declined 15% year-over-year and increased by 17% quarter-over-quarter to HKD1.2 billion. Operating margin declined to 46% from 56.2% in the first quarter of 2023, mostly due to higher marketing expenses. Our net income decreased by 13% year-over-year and increased by 18% quarter-over-quarter to HKD1 billion. Net income margin declined to 39.9% in the first quarter as compared to 47.7% in the same quarter last year. Our effective tax rate for the quarter was 15.2%. That concludes our prepared remarks. We'd now like to open the call to questions. Operator, please go ahead.

Our first question comes from Chiyao Huang from Morgan Stanley. Please ask your question, Chiyao.

I have two questions. First, can you provide an update on our progress in Japan regarding the number of paying clients, the assets under management per client, and the conversion rates from app users to paying clients? Is there any noticeable difference in Japan compared to other international markets at a similar stage? Second, moving into the second quarter, we are observing a strong rebound in China-related assets in Hong Kong and the US. Can you share insights on client trading activity and inflows we have experienced so far in the second quarter? Thank you.

Thank you, Chiyao. I'll let my colleagues, Daniel, answer your first question, and I will address your second question sequentially. Thank you.

In Japan, we are experiencing significant growth in new paying clients. There was strong sequential growth in the first and second quarters, and we are seeing similar robust momentum quarter-over-quarter. Regarding client AUM, we are still in the early stages of attracting client assets, but we have observed that client cohorts continue to invest in our platform. The conversion rate from users to paying clients has improved quarter-over-quarter, thanks to enhancements in the account opening process and the introduction of more financial products on our platform. However, there remains a notable gap compared to other international markets, both in current percentages and in the early days after our launch in those markets. This is primarily due to account opening challenges and the limited range of comprehensive financial products. As Leaf noted in his opening remarks, we have a strong product pipeline slated for Japan in the upcoming quarters. Thank you.

Let me translate for myself. Firstly, we see a strong recovery momentum in the Hong Kong markets, which greatly benefits our clients' asset inflows there, as well as overall trading volume and velocity. As Leaf mentioned earlier, during the first quarter, US stock trading represented over 75% of our total trading volume, and we anticipate this ratio will improve with increased contributions from Hong Kong stocks in the second quarter. Secondly, in the first quarter, we recorded strong net asset inflows of over HKD35 billion, driven by substantial inflows from our existing markets in Hong Kong and Singapore, along with incremental contributions from new markets like Malaysia and Japan. We believe this momentum continues into the second quarter. This will significantly boost client assets and trading volume. Lastly, even though we achieved over 170 fund accounts in the first quarter, partly due to specific reasons in Malaysia related to our brand opening, we believe the overall momentum remains strong in absolute terms, despite the expectation of some quarter-over-quarter decrease due to the high base set in the first quarter. Thank you.

Our next question comes from Katherine Lei at JPMorgan. Please go ahead with your question, Katherine.

Hi, can you hear me clearly?

Yes.

I will translate for myself. My first question is about the market in Malaysia. Can management provide some insights on this market? I've heard that clients are quite active in trading, but is this a one-time occurrence or is it driven by specific events, or is this a continuing trend? My second question pertains to commission rates. Do you anticipate a sequential improvement in these rates? What should we expect moving forward? Thank you.

Hello, thank you, Katherine. Let me address the second question first. I believe the decrease in the blended commission rate was primarily due to our pricing model in the US stock market, as we have mentioned previously. So far this quarter, we have observed that the ratio has become more stable, partly because of high-value stocks like NVIDIA in the US following its stock split. This will ease the pricing pressure in the US. Regarding the unit economics in Malaysia, we have seen very healthy organic growth in asset inflow, client trading velocity, and trading volume on a cohort basis. All these metrics in Malaysia are significantly above the average levels in our overseas markets. However, it may still be too early to reach any definitive conclusions since we just entered Malaysia a few months ago. We will continue to monitor closely. Nonetheless, we believe that the user behavior we have observed so far is not merely a result of one-off events. Thank you.

We officially launched our brokerage business in Malaysia by the end of February, and we've experienced very rapid growth. In the first quarter, Malaysia contributed about one-third of our net new paying clients. Within 49 days of the official brokerage business launch, we achieved the number one spot in total cumulative downloads in Malaysia. Our rapid growth in Malaysia can be attributed to several factors. First, we were already the largest online broker in Singapore when we entered Malaysia, which provided us with significant brand recognition. Second, we offer the best product in Malaysia, a one-stop platform where clients can invest in Malaysian and US equities, along with free market data and information that are industry-leading. Lastly, we had already accumulated a large number of users before our official brokerage launch, allowing us to convert a meaningful percentage of those users. Our first quarter growth exceeded our expectations. However, we anticipate that Malaysia's contribution will decrease sequentially in the second quarter due to the need for improvements in client account opening automation and asset inflow and outflow operations. To ensure a smooth client experience and enhance operational efficiency, we plan to adjust our client acquisition pace to support our growth in Malaysia. Most of our clients in Malaysia are male with higher incomes, and a significant portion belong to the Chinese population. This may explain the high trading turnover and relatively higher average assets than we expected, which could result in a favorable payback period in Malaysia. Thank you.

Alright, I’m showing no further questions. I’ll now turn the conference back to Mr. Daniel Yuan for closing comments.

That concludes our call today. On behalf of 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. That concludes today's conference call. Thank you for participating. You may now disconnect.