On October 29, China Renaissance released a research report maintaining a "Buy" rating on Futu Holdings and significantly raising the target price from US$90.60 to US$127.50. China Renaissance pointed out the following highlights:

• Strong trading volume and client asset growth to deliver 3Q24 earnings growth momentum: Futu's third-quarter revenue is expected to rise 5% quarter-over-quarter, driven by a 13% increase in trading volume, 9% growth in client assets, and a 2% rise in interest income. Overall, non-GAAP net income is projected to rise 5% QoQ in 3Q24E.

• Recovery in HK market trading volume in 4Q24 QTD: The Hong Kong market saw a strong trading volume rebound in early 4Q24, with HSI ADT up 124% QoQ, driving an increase in Futu's HK trading volume. This momentum and improving sentiment around China ADRs are expected to be positive for Futu's trading income in 4Q24.

• Reiterate BUY with a TP increase to US$127.50: A P/E target of 22.0x is assigned based on the expectation that Futu's non-GAAP net profit will increase by 5%, 7%, and 7% for 2024E, 2025E, and 2026E, respectively, following forecasted growth in trading volume and trading velocity, which offsets the expected decline in MFSL balances and higher operating expenses. Moreover, China Renaissance expects Futu to deliver a better earnings outlook for 4Q24E, as the company is expected to benefit from the recent HK market and China ADR sentiment rebound.

Key downside risks:

1) Market downturn

2) Intensifying competition

3) Stricter-than-expected regulation

4) Slower-than-expected overseas expansion