New Product Offerings And Market Expansion Will Attract More Clients

Key Takeaways

• Robust growth in new paying clients in existing markets like Malaysia and Japan is anticipated to boost revenue through increased customer acquisition.
  
• Expansion into crypto trading and equities derivatives, alongside strong product innovation, is expected to enhance trading activity and increase brokerage revenue.
  
• Uncertainty in China markets and rising client acquisition costs challenge growth, while unclear capital strategies and AI development present both risks and opportunities.

Catalysts

Provides digitalized securities brokerage and wealth management product distribution service in Hong Kong and internationally.

• Futu Holdings plans to achieve robust growth in new paying clients by targeting existing markets, such as Malaysia and Japan, which are expected to still provide meaningful growth. This focus is anticipated to increase revenue through expanded customer acquisition.
  
• The ongoing expansion and enhancement of their product offerings, including the rollout of crypto trading in the U.S. and equities derivatives in existing markets, should lead to increased trading activity and potentially higher trading volume, impacting brokerage revenue positively.
  
• Futu's strong product innovation, such as launching multiple new features on their trading platforms, is expected to improve user engagement and attract more clients, likely increasing average client assets, which would enhance revenue through increased asset management fees.
  
• With initiatives in the wealth management sector, particularly structured products for high-net-worth clients and money market funds, Futu can target a growing asset class and generate expanded wealth management revenue.
  
• Futu's growth in average client assets across all markets and the marked increase in margin financing and securities lending suggest potential for expanded interest income, thereby improving net margins.

Futu Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Futu Holdings's revenue will grow by 23.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 45.5% today to 46.0% in 3 years time.
• Analysts expect earnings to reach HK$10.2 billion (and earnings per share of HK$78.44) by about March 2028, up from HK$5.4 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting HK$12.5 billion in earnings, and the most bearish expecting HK$7.4 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.1x on those 2028 earnings, down from 22.5x today. This future PE is lower than the current PE for the US Capital Markets industry at 23.2x.
• Analysts expect the number of shares outstanding to grow by 0.28% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.05%, as per the Simply Wall St company report.

Futu Holdings Future Earnings Per Share Growth

Risks

• The pullback in China equity markets has negatively impacted the valuation of client assets, posing a risk to revenue generation from those assets if such a trend continues.
  
• The decline in the blended commission rate could impact brokerage income, as brokerage income may not grow as quickly as trading volume due to pricing models adopted for U.S. stocks and options.
  
• There is uncertainty in the client acquisition cost (CAC), especially as increases were noted despite active markets, affecting net margins through increased marketing and client acquisition expenses.
  
• The capital return strategy remains unclear, with no recent utilization of the share repurchase program and an absence of regular dividends, potentially impacting investor sentiment and thus market valuation.
  
• The ongoing development and application of AI in operations and client-facing interfaces possess both opportunities and uncertainties, with potential impacts on operational efficiency and risk of increased volatility in decision-making processes.

Valuation

• The analysts have a consensus price target of $143.811 for Futu Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $170.05, and the most bearish reporting a price target of just $113.03.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be HK$22.3 billion, earnings will come to HK$10.2 billion, and it would be trading on a PE ratio of 19.1x, assuming you use a discount rate of 8.1%.
  
• Given the current share price of $114.47, the analyst price target of $143.81 is 20.4% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.