CICC released a research report on June 22nd to maintain "outperform" rating of Futu Holdings, with a target price of $203.6.
CICC said in the research report that Futu Holdings participated in CICC's mid-term investment strategy meeting in the second half of 2021 and had in-depth exchanges with investors on international expansion, regional competition, self-liquidation progress, long-term business layout and other issues. The main points are as follows:
1. About market expansion
From a sub-regional point of view, 1) the company has a comprehensive leading edge in the Hong Kong market. After years of operation and building user trust, it has ushered in all-round growth since last year under the catalysis of the epidemic and the market. The company estimates that the share of Hong Kong's retail brokerage business is expected to reach 40% on a basic scenario. 2) the Singapore market has made better progress than expected, with the number of paying users exceeding 100000 as of June 1. The Singapore market is similar to that of Hong Kong, and the company plans to replicate the success of Hong Kong to Singapore, hoping to achieve similar market share. 3) the American market is very large and highly competitive, so it adopts differential positioning. Compared with the minimalism and highly gaming design of the Robinhood, Futu focuses on building an integrated APP that integrates trading / quotation / information / community for higher-level investors. In addition, the way of monetization of customer assets under the supervision of SEC in the United States is more flexible. 4) the mainland market is still a gold mine. At present, there are more than 10 million APP users from the mainland and less than 500000 1Q21 paying users, of which ESOP is an important entrance for high-end customers. The company's international expansion this year may mainly focus on Singapore and the United States, and will continue to gradually cut in from the Chinese-dominated market in the future.
2. About competitive advantage:
Futu has established the competitiveness with time barrier in all aspects such as license , user experience, brand trust, technology reserve, capital strength, etc., and maintains the pace of continuous innovation, constantly consolidating the leading edge. First of all, the financial business is a heavy decision-making process. Founded in Hong Kong in 2012, the company has gradually built up user trust and spread its influence to markets such as Singapore through its iterative customer acquisition strategy and strong Tencent endorsement. Secondly, Futu holds Hong Kong SFC 1 / 2 / 3 / 4 / 5 / 7 / 9, of which category 3 (leveraged foreign exchange trading) and category 7 (automated trading and permission to open, the company expects to open third-party dark market services in the second half of this year) is more difficult to apply; holds a US brokerage and clearing license, and a Singapore capital market service license. In addition, the company has raised a total of US $2.08 billion since its listing, has a profitability of HK $1.18 billion in 1Q21, and has accumulated a cooperative relationship with banks in Hong Kong for many years, and has recently won the S & P investment grade "BBB-" rating with strong capital strength and sufficient financing quota.
3. Long-term business layout:
First of all, through international expansion to link global investors and China's new economy enterprises to achieve rapid growth in the number of users and assets. Secondly, through high frequency service, create a wealth management platform "Money Plus", and strengthen the stickiness and robustness of users' assets, as well as diversified ways of monetization. Looking forward, the company plans to develop into an all-round account, realizing an account and a global market; in the future, the Hong Kong market is expected to further promote one-stop digital financial services such as wealth management, payment, bank (which are applying for a virtual banking licence).
Valuation
The company currently trades on 42x/29x 2021/2022e P/E; maintains a target price of $203.6 and outperforms ratings, corresponding to 56x/38x 2021/22 P/E, implying 32% upside potential.
Risk
1) risk of market volatility
2) the competition exceeded expectations
3) regulatory uncertainty
4) lower-than-expected business expansion.