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.

Thank you all for joining our earnings call today. We wrapped up the quarter with 154,000 net new paying clients, which is a 138% increase year-over-year and stable compared to the previous quarter. Our total number of paying clients has reached approximately 2.2 million, marking a 33% year-over-year increase. In the first three quarters of 2024, we have gained 487,000 paying clients, and we anticipate that our full-year growth will comfortably surpass our guidance of 550,000, driven by strong performance in established markets and positive momentum in newer markets. Client acquisition accelerated in Hong Kong and Singapore due to effective campaigns, with these regions together accounting for over one-third of new paying clients. For three consecutive quarters, Malaysia has been the leading source of new paying clients among our southern markets. We are dedicated to enhancing our brand image in Malaysia and have expanded our product offerings to improve our value proposition as a comprehensive investment platform. In Japan, we have made steady progress in acquiring clients, despite a decline in interest in Japanese equities among retail investors due to market pullbacks in the third quarter. We launched new product offerings such as the U.S. stock Dividend Reinvestment Plan in Hong Kong, NISA savings accounts and mutual funds in Japan, and have recently supported U.S. margin trading and Japan options trading, which are beginning to gain traction among our clients. In Malaysia, we've introduced ringgit and USD denominated money market funds and became the first broker to provide U.S. options trading. Total client assets grew 48% year-over-year and 20% quarter-over-quarter, reaching HK$693 billion. The increase was driven by strong net asset inflows across markets, as well as the appreciation of client stock holdings due to the surge in Chinese equities near the end of the quarter. In Singapore, total and average client assets rose by 18% and 10% quarter-over-quarter, respectively, propelled by robust net asset inflows and favorable market conditions. The U.S., Canada, and Australia all experienced double-digit growth in average client assets for the third consecutive quarter. During the third quarter, our clients maintained a risk-on approach, reflected in a slight sequential increase in daily average margin balances. Significant market movements in September led some clients to take profits, resulting in a 7% decline in margin financing and securities lending balances to HK$41 billion at the end of the quarter. Total trading volume increased by 17% quarter-over-quarter to HK$1.9 trillion, with U.S. stock trading volume outperforming this growth, rising 23% sequentially to HK$1.53 trillion. This increase in U.S. stock trading was driven by heightened interest in technology stocks and leveraged ETFs amid increased volatility in August. Despite slower sentiments and lower trading activity in July and August, our clients quickly regained momentum in China equities in September. Overall, Hong Kong stock trading volume decreased by 3% quarter-over-quarter to HK$348 billion. Notably, during the week of September 23rd, Hong Kong stock trading volume surged by 267% week-over-week, and when combined with China ADRs, accounted for over half of our trading volume that week. Wealth management experienced another quarter of strong growth due to appealing yields from money market funds and fixed income funds. At the end of the quarter, total client assets grew by 87% year-over-year and 22% quarter-over-quarter to HK$97 billion. Approximately 27% of our paying clients held wealth management products, up from 25% in the second quarter. To meet client demand for asset allocation, we launched an ETF-based robo-advisory service in Hong Kong and Singapore. We now have 461 IPO distribution and investor relations clients, representing a 17.9% year-over-year increase. We successfully underwrote the three largest Hong Kong IPOs in the first three quarters of 2024. 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 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% quarter-over-quarter. The increase was mainly driven by a 75% year-over-year and 70% quarter-over-quarter growth in total trading volume, partially offset by the decline in blended commission rate as our clients gravitate towards higher-priced stocks. Our blended commission rate went down from 8.5 basis points to 8 basis points quarter-over-quarter. Interest income was HK$1.7 billion, up 13% year-over-year and 7% 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 the higher interest income from security borrowing and the lending business. The quarter-over-quarter 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% quarter-over-quarter. The year-over-year and quarter-over-quarter 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 compared to brokerage income year-over-year, mainly due to cost savings from our U.S. self-clearing business. Interest expenses were HK$414 million, up 43% year-over-year and 10% quarter-over-quarter. The year-over-year and the quarter-over-quarter 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% quarter-over-quarter. The year-over-year increase was primarily driven by higher product service fees and the data transmission fees as a result of growing business scale. As a result, total gross profit was HK$2.8 billion, an increase of 27% from HK$2.2 billion in the third quarter of 2023. Gross margin was 81.8% as compared to 83.5% in the year-ago quarter. Operating expenses went up 21% year-over-year and remained flat quarter-over-quarter to HK$1.1 billion. R&D expenses were HK$385 million, up 7% year-over-year and 3% quarter-over-quarter. The year-over-year and quarter-over-quarter increase was mainly driven by increasing R&D headcount to support new products and new markets. Selling and marketing expenses were HK$314 million, up 49% year-over-year and down 7% quarter-over-quarter. The year-over-year increase was mainly driven by a triple-digit year-over-year growth in new paying clients, partially offset by lower client acquisition costs. The quarter-over-quarter decline was mainly due to improved efficiency in customer acquisition. G&A expenses were HK$381 million, up 18% year-over-year and 5% quarter-over-quarter. The year-over-year and quarter-over-quarter increase was primarily due to an increase in headcount for general and administrative personnel. As a result, income from operations increased by 31% year-over-year and 17% quarter-over-quarter to HK$1.7 billion. Operating margin increased to 50.4% from 49.8% in the third quarter of 2023. Our net income increased by 21% year-over-year and 9.1% quarter-over-quarter to HK$1.3 billion. Net income margin declined to 38.4% in the third quarter as compared to 41.2% in the same quarter last year. Lower net income margin was mainly due to the unrealized foreign exchange loss from the appreciation of RMB in the third quarter. Our effective tax rate for the quarter was 15.3%. In addition, we are pleased to announce that our Board of Directors approved a special cash dividend of US$0.25 per ordinary share or US$2 per ADS to holders of ordinary shares and the holders of ADS of record as of the close of business on December 6, 2024. That concludes our prepared remarks. We now like to open the call to questions. Operator, please go ahead.

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

Thank you for taking my question. I have two questions. First, since the China asset increased since the end of September, based on the current run rate in the fourth quarter, can you provide some insight on the Hong Kong stock trading volume and ADR trading volume as a percentage of your total trading volume? Will that improve your overall blended commission rate in the fourth quarter and your new customer acquisition in Hong Kong? My second question is about crypto. Can you share any details on the crypto developments in the third quarter? Will the Bitcoin price increase since October affect your overall transaction amount and new paying clients? Also, could you provide an update on the VATP license in Hong Kong? Thank you.

Thank you, Cindy. Let me address your second question about crypto while Daniel will cover the first. We are still undergoing regulatory review regarding the VATP license, which includes some on-site visits and inquiries. We hope to provide updates to the market soon. As Leaf mentioned earlier, we launched our crypto business in the third quarter in Hong Kong. Recent data indicates that user penetration and trading volumes have significantly increased. Currently, the daily average trading volumes for crypto assets in Hong Kong are between US$10 million and US$20 million. I believe this momentum in penetration and trading volume will persist. Given the recent surges in digital asset prices, we expect a positive impact on our new client acquisitions in Hong Kong.

In late September and early October, we saw a significant increase in the trading volume and the percentage of trading volume of Hong Kong stocks and China ADRs. As Leaf noted in his opening comments, the combined contribution from Hong Kong stocks and China ADRs surpassed 50% at times. Subsequently, as many China assets pulled back, both figures saw a sequential decline, but overall, they remain much stronger than in the third quarter. So far in the fourth quarter, U.S. equities have performed exceptionally well, particularly around the U.S. election. Many technology stocks favored by our clients experienced rapid increases. Overall, we have noted a substantial sequential rise in our U.S. stock trading volume in the fourth quarter. Regarding the blended commission rate, several factors influence it. Thus far in the fourth quarter, we have observed a slight decline in the commission rate, largely because the growth in trading volume for cash equities outpaced that of derivatives, leading to a minor decrease in the blended commission rate. As for client acquisition, we have registered an increase in new paying clients this quarter, mainly due to our successful client acquisition efforts in Hong Kong, spurred by the strong performance of Hong Kong stocks and China ADRs in early October and ongoing volatility, which facilitated client engagement. 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.

I have two questions. First, I would like to understand the thinking behind the special dividend, particularly how it relates to growth potential in overseas markets and the related investments in these areas. Will there be more recurring shareholder return plans in the next two to three years? My second question pertains to sales and marketing expenses. I am curious about what portion of these expenses is fixed and what portion is variable, depending on client acquisition numbers. What should we anticipate for the growth of the fixed budget in 2025, considering our plans in various overseas markets? Thank you.

Thank you, Chiyao. Let me address your first question regarding the special dividend, while I will leave the second question to Daniel. As you may know, this year, particularly in the third quarter, is significant for Futu. Recently, we celebrated our 12th anniversary, and this marks five years since our IPO in 2019. We are committed to rewarding our shareholders and enhancing shareholder value. Since 2021, we have launched several share repurchase programs to reflect this commitment. Given that this year is the fifth anniversary of our listing, we want to take this opportunity to show our appreciation to our long-term shareholders. This is the primary reason for the special cash dividend payout, which totals $280 million, representing 7.8% of our total net equities as of the end of the third quarter. Based on our balance sheet and cash reserves, we believe this amount is suitable and will not adversely affect our client acquisitions or ongoing operations. Regarding the establishment of more consistent dividend payout policies, we plan to revisit this next year, considering market conditions and our future business development. Thank you very much.

So, more than 50% of our sales and marketing expenses are related to salaries, which indicates a more fixed nature, while the remainder is associated with marketing. After completing the initial rapid expansion in several new markets this year and without plans to enter new markets next year, we expect to be relatively disciplined in terms of headcount for the upcoming year. Marketing expenses will be influenced by various external factors. We will provide more guidance during our fourth quarter earnings call in March next year. Thank you.

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.

Thank you, management, for taking my question. This is Yoyo Fan from CICC. I have two questions. The first is about the AUM breakdown. Can you tell me how much is from the clients' net asset inflow versus the market-to-market appreciation? Also, what is the regional breakdown of the client assets? My second question concerns the current interest income breakdown. Additionally, could you provide more insights on how the interest rate cut will impact our net interest income? Thank you.

Thank you, Yoyo. I will address your second question about the interest income breakdown, and I will leave the first question to Daniel. In terms of the interest income breakdown, the structure is quite similar to the patterns observed in the second quarter. The interest income generated from our current idle cash accounts for approximately 40% to 45% of our total interest income, while the remaining portion primarily comes from margin financing and stock borrowing and lending. There are no updates regarding the sensitivity implications from the federal rate cut. In the third quarter, we noticed that since many clients locked in their profits at the end of the third quarter, the absolute amount of interest from idle cash increased, which partially mitigated the negative effects of the rate cut in the U.S.

So, regarding the growth of our client assets in the quarter, more than half of that was due to market appreciation, particularly at the end of the quarter when Chinese equities performed exceptionally well. In the third quarter, overall net asset inflow remained very strong. The number did trend down slightly compared to the previous quarter, given the high base from the second quarter, but it still significantly surpassed the figures from the first quarter. In terms of geographical breakdown, the Hong Kong market continued to provide the majority of our net asset inflow, followed by Singapore. For three consecutive quarters, we have seen overseas markets contributing over HK$10 billion in net asset inflow, and we are very optimistic about the continued strength of this inflow from overseas markets. 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.

Congratulations to the management on a solid set of results. I have a follow-up question regarding the special dividend. We understand the shareholders are aware of both the buyback and the dividend. What is the reasoning for issuing the dividend at this time? Do you have a preference for buybacks or dividends moving forward? What factors do you take into account when deciding between the two? What do you think investors would prefer right now? My second question is about the earnings compared to the Visible Alpha consensus; we're pleased to see that the top line exceeded expectations by 4%, but the net profit is mostly in line. We observed an item of other costs leading to a loss of HK$131.4 million, which is significant. Can management clarify this item and whether it will impact your net profit in the future? Thank you.

Thank you, Charles. I will address these two questions. Regarding the special dividend, we will actually utilize a combination of share buybacks and cash dividends. When we engage with our investors, we observe that certain groups prioritize cash dividends, which provide better visibility of cash inflows. Moving forward, we will consider the diverse preferences of our shareholders to reaffirm our commitment to enhancing shareholder value for everyone. As for the breakdown of other costs, this is primarily due to unrealized foreign exchange losses resulting from the appreciation of the RMB against the U.S. dollar, as well as fluctuations of the Singapore dollar versus the U.S. dollar, both of which are non-cash items. If we filter out the operational noise and focus on our key operating profit and top-line growth, the trends for both are almost aligned. Thank you very much.

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.

I have two questions. The first is about your strategy in the major markets. You mentioned that there are no plans for new markets next year, and you'll likely focus on existing ones. Hong Kong, Singapore, and Malaysia are performing well. This quarter, you noted that the average client assets in the U.S., Canada, and Australia have seen double-digit sequential growth for three straight quarters. What changes have you made in your strategies in these key markets that have led to this improvement in client quality, or is it primarily due to market appreciation, especially in the U.S.? My second question relates to the recent macro events, like the Fed rate cut, China's stimulus policies, and the U.S. election. Have you observed any significant changes in investors' trading behaviors and asset allocation?

And to briefly respond to your questions, I'll start with the second one since it's somewhat similar to an earlier answer. In terms of our trading volume mix, we noticed an increase in the trading volume from Hong Kong stocks and China ADRs in late September and early October, although that percentage dipped a bit due to the performance decline of China equities. Overall, though, the percentage increased from the previous quarter. Regarding U.S. stocks, they have performed quite well so far in the fourth quarter, particularly around the U.S. elections, with technology stocks and virtual asset stocks seeing exceptional performance, which boosted overall U.S. stock trading volume. Now, regarding your first question, you mentioned several markets, and it's challenging to provide a brief answer during our earnings call. I'm open to further discussion separately. To summarize, over time, we have gained a clearer understanding of our business and capabilities, as well as an insight into each of these markets and client demands. We don't apply a uniform strategy for all our Southern markets; instead, we concentrate on learning about our users, developing tailored product pipelines, creating distinct marketing messages, highlighting various unique selling points, and employing different client operations strategies. Thus, we will continue to adapt based on our insights into 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.