Rising Regulatory Issues Will Hinder International Expansion And Fee Margins

Key Takeaways

• Regulatory pressures and geopolitical tensions hinder Futu's global expansion and increase compliance costs, challenging revenue growth and margin improvement.
  
• Demographic shifts and intense competition threaten user growth and income, exposing Futu to greater earning volatility and slower long-term expansion.
  
• Geographic diversification, tech investment, and expansion into wealth management and digital assets are driving growth, profitability, and reduced regulatory risk for the company.

Catalysts

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

• Intensifying regulatory scrutiny and rising geopolitical tensions between China and Western markets threaten to restrict Futu's international expansion, which could limit new account and asset inflow growth and ultimately constrain revenue generation over time.
  
• Global data protection laws and privacy regulations are tightening, likely raising compliance and operational costs for Futu and impairing margin expansion, particularly as it enters multiple new jurisdictions.
  
• The demographic headwinds of an aging population in China, combined with a shrinking pool of young investors, may result in stagnating or declining retail investor acquisition, reducing Futu's long-term client and asset base growth.
  
• Fee compression across the digital brokerage sector continues to accelerate due to zero-commission models and rising competition from state-owned and fintech rivals, which will likely erode Futu's brokerage income per user and pressure both revenue and net margins in the years ahead.
  
• Greater regulatory barriers for cross-border products and potential restrictions on non-localized wealth management services increasingly threaten Futu's strategy for revenue diversification, exposing earnings to volatility in its core Hong Kong and Singapore operations and raising the risk of slower earnings growth if new product or market launches are curtailed.

Futu Holdings Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Futu Holdings compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Futu Holdings's revenue will grow by 15.7% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 47.1% today to 40.0% in 3 years time.
• The bearish analysts expect earnings to reach HK$8.6 billion (and earnings per share of HK$62.69) by about August 2028, up from HK$6.6 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 20.6x on those 2028 earnings, down from 27.9x today. This future PE is lower than the current PE for the US Capital Markets industry at 25.6x.
• Analysts expect the number of shares outstanding to grow by 0.82% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.67%, as per the Simply Wall St company report.

Futu Holdings Future Earnings Per Share Growth

Risks

• Futu's sustained international expansion, with over 50% of funded accounts now outside its core Hong Kong market and strong client growth in the U.S., Singapore, Malaysia, and Japan, means its revenue base is becoming geographically diversified, reducing dependence on any single regulatory regime and supporting top-line growth.
  
• Wealth management and value-added products are growing rapidly, with client assets in wealth management up 104% year-over-year and new product launches in structured products and tokenized money market funds, which should increase recurring fee-based income and improve net margins.
  
• The company is investing heavily in advanced technology and AI-powered features, enhancing user experience, client engagement, and operational efficiency, which helps drive customer retention above 98% and is likely to support long-term earnings growth.
  
• Trading volume and client asset inflows are experiencing substantial growth, as demonstrated by 121% year-over-year trading volume growth, a doubling of net asset inflows in the first half of 2025, and record client assets, all of which directly benefit revenue and profitability.
  
• Futu is actively pursuing the integration of traditional and digital asset offerings and moving towards acquiring additional crypto exchange licenses, creating opportunities for incremental revenue streams-especially given positive regulatory signals in places like Hong Kong-which may further enhance long-term earnings and revenue diversity.

Valuation

• The assumed bearish price target for Futu Holdings is $124.85, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Futu Holdings's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $200.0, and the most bearish reporting a price target of just $124.85.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be HK$21.5 billion, earnings will come to HK$8.6 billion, and it would be trading on a PE ratio of 20.6x, assuming you use a discount rate of 8.7%.
  
• Given the current share price of $168.52, the bearish analyst price target of $124.85 is 35.0% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• 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.