On November 22, J.P.Morgan remained Overweight on $Futu Holdings Ltd (FUTU.US)$ and raised the Dec-23 target price from $62.00 to $70.00.

J.P.Morgan pointed out the following highlights on FUTU:

1. A strong beat on 3Q22 earnings results:Net profits beat JPM and consensus estimates by 30% and 19%, respectively. Key positives include steady paying client growth despite volatile markets, improvement in blended fee rate, strong growth in interest income, and stable growth in WM, ESOP, and IPO businesses.

2. Steady client growth in offshore markets despite challenging market:Futu acquired 200,733 new paying clients in 9M22, beating its FY22 guidance of 200,000.

3. Management guidance is positive:

   1) Interest income is mainly from idle cash and margin business; management expects the contribution to revenue to increase in 4Q.

   2) Management disclosed that Futu acquired a clearing license in SG, which may lower funding cost in that market.

   3) Derivatives contributed to 30% of trading volume, partly contributing to improving the blended fee rate in 3Q. Management said that Futu will focus on roll out of HK/US option trading into the SG market.

   4) Futu plans to expand into new markets in 1H23, which should be positive for client growth.

J.P.Morgan's Dec-23 price target of US$70 is derived from a PEG valuation methodology, based on a 27% 2022-25E EPS CAGR and 0.8x PEG, which is in line with listed global online broker peers.

Downside Risk include:

1. Lackluster trading volume growth.

2. Regulatory risk .

3. Lower-than-expected paying client growth.

Upside risks include:

1. higher-than-expected paying client growth

2. stronger-than-expected trading volume growth

3. better-than-expected operating efficiency improvement