Equity Research Analyst - Long-Short

Raj S, CA, CFA

Equity Bottom-Up

<ul>
<li>Mainland exposure was always the "red flag" for Futu and that's now removed; the current valuations and downgrades price in the worst case scenario, providing a clear asymmetric upside opportunity.</li>
<li>2Q is evidence that the underlying business remains strong: revenue increased 36% y/y, profits +40% y/y, strong client adds ex-mainland, and trading volume reached new records</li>
<li>Futu trades at 9.9x FY2 P/E, around the bottom of its three-year range; a return to 16x FY2 P/E implies approximately 60% upside, not to mention the long-term compounding business.</li>
</ul>


Mainland exposure was always the "red flag" for Futu and that's now removed; the current valuations and downgrades price in the worst case scenario, providing a clear asymmetric upside opportunity.
2Q is evidence that the underlying business remains strong: revenue increased 36% y/y, profits +40% y/y, strong client adds ex-mainland, and trading volume reached new records
Futu trades at 9.9x FY2 P/E, around the bottom of its three-year range; a return to 16x FY2 P/E implies approximately 60% upside, not to mention the long-term compounding business.


Futu Holdings (FUTU US) : Regulatory Risk Reset, Asymmetric Upside

HK/China Equity Long-Short

Osbert Tang, CFA

<ul>
<li>
<a href="https://www.smartkarma.com/entities/futu-holdings-ltd" target="_blank" data-smartkarma-citation="entities:27858:1" rel="noopener">Futu Holdings Ltd (FUTU US)</a>'s 2Q26 non-GAAP net profit growth of 40.1% is impressive, suggesting that the negative impact of regulatory issues is fading. </li>
<li>Operational metrics accelerated sequentially, partly due to the solid HK IPO pipeline, which is likely to sustain. 3Q26 momentum moderated slightly but is manageable.</li>
<li>Its 12.1x FY26 PER is inflated given the room for earnings upgrades. It is also cheaper than the average of 17.2x since 2021 and 13.7x since 2025.</li>
</ul>



Futu Holdings Ltd (FUTU US)'s 2Q26 non-GAAP net profit growth of 40.1% is impressive, suggesting that the negative impact of regulatory issues is fading. 
Operational metrics accelerated sequentially, partly due to the solid HK IPO pipeline, which is likely to sustain. 3Q26 momentum moderated slightly but is manageable.
Its 12.1x FY26 PER is inflated given the room for earnings upgrades. It is also cheaper than the average of 17.2x since 2021 and 13.7x since 2025.


<ul>
<li>FUTU’s platform is already scaled and profitable, with strong client growth, sticky assets, and expanding yields from cash and margin balances.</li>
<li>Crypto optionality is real but not fully in consensus. The full license could transform revenue mix in 2026-27 significantly, with margin upside.</li>
<li>At 20x FY2 P/E, even though its peak of its range, we think the valuation doesn’t reflect the potential impact on revenues from crypto. We believe consensus is 10-15% short.</li>
</ul>


FUTU’s platform is already scaled and profitable, with strong client growth, sticky assets, and expanding yields from cash and margin balances.
Crypto optionality is real but not fully in consensus. The full license could transform revenue mix in 2026-27 significantly, with margin upside.
At 20x FY2 P/E, even though its peak of its range, we think the valuation doesn’t reflect the potential impact on revenues from crypto. We believe consensus is 10-15% short.


FUTU: Strong Traction Expected from Crypto Regulatory Push in HK and ASEAN

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

<ul>
<li>
<a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a> has been active since the start of the year in selling down some of its stake in its investee companies to raise over US$3.3bn cash.</li>
<li>Tencent did report a negative free cash flow quarter in 2Q26. Given the elevated spending, it might look to sell some more of its stakes.</li>
<li>Tencent owned over US$66bn worth of shares in over 39 companies, with the bulk of it stemming from US, US-HK listed and overseas listed companies.</li>
</ul>



Tencent (700 HK) has been active since the start of the year in selling down some of its stake in its investee companies to raise over US$3.3bn cash.
Tencent did report a negative free cash flow quarter in 2Q26. Given the elevated spending, it might look to sell some more of its stakes.
Tencent owned over US$66bn worth of shares in over 39 companies, with the bulk of it stemming from US, US-HK listed and overseas listed companies.


Aequitas: Tencent Investee Selldown - Start of Another US$70bn Selldown Wave

Asian Hedge Fund Manager, Long Short Equity, Macro

David Mudd

Thematic (Sector/Industry)

<ul>
<li>China considers launching a stock stabilization fund which could release RmB800B in liquidity support for the market.  Securities firms and insurance companies will be the major beneficiaries.</li>
<li>The mega merger between  <a href="https://www.smartkarma.com/entities/haitong-securities-co-ltd-h" target="_blank" data-smartkarma-citation="entities:5665:1" rel="noopener">Haitong Securities Co Ltd (H) (6837 HK)</a> and <a href="https://www.smartkarma.com/entities/guotai-junan-securities-co-ltd-5dfaf2c5-76d3-4f34-a77d-118787fd7091" target="_blank" data-smartkarma-citation="entities:23752:1" rel="noopener">Guotai Junan Securities (2611 HK)</a> could be the precursor to further industry consolidation.</li>
<li>Hong Kong trading volumes and IPO's set to surge as Beijing lifts sentiment.</li>
</ul>


China considers launching a stock stabilization fund which could release RmB800B in liquidity support for the market.  Securities firms and insurance companies will be the major beneficiaries.
The mega merger between  Haitong Securities Co Ltd (H) (6837 HK) and Guotai Junan Securities (2611 HK) could be the precursor to further industry consolidation.
Hong Kong trading volumes and IPO's set to surge as Beijing lifts sentiment.


United States

Futu Holdings Limited operates as a holding company. The Company, through its subsidiaries, offers an online brokerage platform that enables individual investors to trade in listed stocks. Futu Holdings serves customers in the United States, China, and Hong Kong.

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Futu Holdings Ltd (FUTU US)

Futu Holdings (FUTU US) : Regulatory Risk Reset, Asymmetric Upside

Mainland exposure was always the "red flag" for Futu and that's now removed; the current valuations and downgrades price in the worst case...

Raj S, CA, CFA

Futu Holdings (FUTU US): A Splendid Show

Futu Holdings' 2Q26 results are impressive, and operating metrics have accelerated sequentially. The impact of regulatory issues is fading, and it...

Osbert Tang, CFA

FUTU: Strong Traction Expected from Crypto Regulatory Push in HK and ASEAN

We re-iterated our bullish position on FUTU in a new note. FUTU's risk-reward is asymmetric: The combination of a structurally low valuation,...

Raj S, CA, CFA

Aequitas: Tencent Investee Selldown - Start of Another US$70bn Selldown Wave

Tencent (700 HK) has been active since the start of the year in selling down some of its stake in its investee companies to raise over US$3.3bn cash.

Sumeet Singh

Hong Kong/China Brokers: TAKE THE OFFER!

The HK/China brokers: 6030, 3908, 6886, 6806, 6881, 1776, 6178, 1456, 165, and 6099 have gained between 90% and 100% since the report was published...

David Mudd

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