On January 22, CICC released a research report, keeping the profit and target price covered by Futu unchanged, with a target price of 86 US dollars.
In its research report, CICC stated:
Recent stock price adjustments and divergence from business structure
Since mid-November 2023, Futu's stock price has fallen 25%. During this period, the Hang Seng Technology/China Securities Index fell 24%/17% vs. the US NASDAQ rose 9%. Futu's decline in the performance of Hengke and China General, may reflect pessimism's suppression of valuations, and its customer trading volume is concentrated on US stocks (Futu's US stock trading volume accounts for 74% in 3Q23). Futu's 4Q profit is expected to remain stable month-on-month.
Interest income declines are manageable in anticipation of overseas interest rate cuts, and commission income or contribution performance is flexible
Total interest income accounts for 52% of Futu 2023E's net revenue, of which about 4 became interest on idle funds/6 became interest on business income such as securities financing, etc., that is, about 25% of total revenue and is highly sensitive to interest rate cuts. However, on the one hand, interest income did not plummet and was affected by the daily average and smooth term of deposits. On the other hand, the decline in external interest rates or boosted market sentiment.
The orderly exhibition industry in the international market contributes to long-term growth
Currently, Futu's basic market in Greater China is stable, and it is exhibiting in international markets such as Singapore/US/Australia/Japan/Canada. The international market accounted for 60% of the new investors added in 3Q23; data shows that overall user MAU increased year-on-year and month-on-month.
Compared to its own valuation range and comparable overseas peers, it is in a low position
Futu is currently trading at 2023e/24e 11x/9x P/E. Even after selecting the range of 2022 to date since 2022 since then when regulatory uncertainty is compounded by market adjustments, the current TTM P/E valuation is only 1.4%. Compared with US stocks comparable to Yingtou Securities (traded at 16x TTM P/E), Futu's current valuation is 26% off compared to its price, and the discount rate is 79% since 2022 (90% since listing).
CICC believes that the current stock price of digital fintech companies represented by Futu may have been overadjusted. Their customer trading volume is dominated by US stocks, the overall impact of interest rate cuts on total revenue is manageable, and customer acquisition in the international market is progressing in an orderly manner; the current valuation clearly deviates from the company's fundamentals and the level of overseas peers.
risks
Retail volume of US stocks has shrunk; interest income has fallen more than expected; regulatory policy uncertainty.