On July 26, CICC issued a research report to maintain Futu Holdings' "Outperform Industry" rating with a target price of US$183.

In its research report, CICC expects that the number of Futu 2021Q2 users will continue to grow strongly, but its Q2 revenue and profits are expected to decline month-on-month, taking into account lower turnover rates and higher customer acquisition costs in the Hong Kong stock market.

However, CICC stressed that considering Futu's comprehensive advantages with time barriers in all aspects such as license qualification, user experience, technology reserve and capital strength, its growth path is clear, the market space is broad, and the pullback provides buying opportunities instead.

Key points of attention:

1) the number of fee-paying households is expected to maintain strong growth.CICC expects Futu Q2 to add about 196000 to 986000 paying users, of which the Singapore market may contribute nearly half of the increase; the rising proportion of foreign users effectively increases the conversion efficiency of customers from registration to gold.

2The turnover rate has fallen, the cost of obtaining customers has increased, and the company's revenue and profit are expected to decline significantly compared with the previous month.1) Q2 Hong Kong stock market ADT-33% to 151.3 billion Hong Kong dollars, US stock trading volume-15%, the company's turnover rate is expected to decline by about 40%; in addition, the composite commission rate is also expected to decline due to promotional activities newly entering the Singapore market. 2) considering the rigidity of employee costs, the high growth in the number of new users, and the increase in the cost per customer brought about by the opening up of new markets and the decline in the market, it is expected that the marketing expenses will increase significantly compared with the previous month, driving the company's Q2 operating profit margin to-17.1ppt to 40.6%.

3) short-term betaAttributes lead to performance fluctuations, long-term high user growth drives cross-cycle growth, and market pullbacks provide buying opportunities.CICC believes that Futu has the comprehensive advantages of time barriers in all aspects such as license qualification, user experience, technology reserve, capital strength, etc., with a clear growth path and broad market space: 1) first of all, through international expansion to link global investors and China's new economic enterprises to achieve rapid growth in the number of users and assets. 2) second, use high frequency to promote low frequency, create an elephant wealth management platform, and strengthen the stickiness and robustness of users' assets, as well as diversified ways of realization; 3) looking forward, the company plans to develop into an all-around account and realize a global account market; it is expected that Futu will further promote one-stop digital financial services such as financial management / payment / banking in the Hong Kong market in the future.

Valuation and recommendations:

CICC estimates that Futu's 2Q21 revenue will be the same as + 137% CPM 26% to HK $1.63 billion, taking into account the impact of the market downturn on the turnover rate and the increase in cost per passenger, and cut its 2021 / 2022 non-GAAP profit by 21% to HK $3.3 billion / 4.6 billion. Futu is currently trading on 43x/31x 2021e/22e PE. Taking into account the profit adjustment, but also taking into account the vast market space of the company, cut the target price by 10% to $183, corresponding to 45x2022e PE and 47% upside space.

Risk:

Market volatility risk

The competition exceeded expectations

Regulatory uncertainty.