Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

KraneShares CSI China Internet ETF / Event-Driven

<ul>
<li>The PCAOB has not, despite a cooperation agreement with the CSRC signed in 2013, been able to conduct on-site investigations of a HK or mainland-based company since 2010.</li>
<li>On Friday, the CSRC published a new Strengthening Confidentiality and File Management Related to Overseas Issuance to replace 2009 rules. </li>
<li>Importantly, the revised Provisions deletes the stipulation that “on-site inspections shall be dominated by domestic regulators or depend on the conclusions of inspections by domestic regulators.” Will it be enough?</li>
</ul>


The PCAOB has not, despite a cooperation agreement with the CSRC signed in 2013, been able to conduct on-site investigations of a HK or mainland-based company since 2010.
On Friday, the CSRC published a new Strengthening Confidentiality and File Management Related to Overseas Issuance to replace 2009 rules. 
Importantly, the revised Provisions deletes the stipulation that “on-site inspections shall be dominated by domestic regulators or depend on the conclusions of inspections by domestic regulators.” Will it be enough?


New CSRC "Provisions" Take a Step Towards Meeting PCAOB Requirements

Forensic Analyst

Jason Yap, CFA

Forensic Accounting

<div>A pandemic fuelled retailed trading frenzy and strong market performance in 2020 enabled <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> to benefit from unprecedented growth in paying client additions and trading activities.  A recent USD1 trillion selloff of China offshore equities and a shift in investor sentiment however, compounded by escalating regulatory scrutiny, has led to concerns whether the high growth seen in 2020 and early 2021 would persist in coming quarters.  We lay out 4 hypotheses for a potential negative re-rating focused on growth declines, continued investments, regulations, and licensing concerns. </div>

A pandemic fuelled retailed trading frenzy and strong market performance in 2020 enabled Futu Holdings Ltd (FUTU US) to benefit from unprecedented growth in paying client additions and trading activities.  A recent USD1 trillion selloff of China offshore equities and a shift in investor sentiment however, compounded by escalating regulatory scrutiny, has led to concerns whether the high growth seen in 2020 and early 2021 would persist in coming quarters.  We lay out 4 hypotheses for a potential negative re-rating focused on growth declines, continued investments, regulations, and licensing concerns. 

Futu Holdings - An Inflection Point Imminent?

China/Asia TMT

Shawn Yang

China growth and global non-US Internet equities

Blue Lotus Research Institute

Blue Lotus Research is a Hong Kong Type 4 Licensed investment advisory firm focusing on Chinese growth equities and global non-US Internet equities

Equity Bottom-Up

<ul>
<li>FUTU reported 2Q23 revenue 5.9%/13.5% vs. our estimate/consensus, non-GAAP NI beat our estimate/consensus by 9.9%/19.4%, mainly contributed by higher revenue from interest income due to continuous interest rate hike.</li>
<li>Overseas expansion turns to be the primary focus. However, we think exploit new market is a bumpy and slow path, which cannot solve the near-term headwind on weak trading sentiment.</li>
<li>We maintain the stock as BUY rating and maintain TP at US$55/ADS, which implies 12.6x PE in 2023, the stock currently trading at 11.3x PE in 2023, leaving 12% upside.</li>
</ul>


FUTU reported 2Q23 revenue 5.9%/13.5% vs. our estimate/consensus, non-GAAP NI beat our estimate/consensus by 9.9%/19.4%, mainly contributed by higher revenue from interest income due to continuous interest rate hike.
Overseas expansion turns to be the primary focus. However, we think exploit new market is a bumpy and slow path, which cannot solve the near-term headwind on weak trading sentiment.
We maintain the stock as BUY rating and maintain TP at US$55/ADS, which implies 12.6x PE in 2023, the stock currently trading at 11.3x PE in 2023, leaving 12% upside.


[Futu Holdings (FUTU US, BUY, TP US$55) Earnings Review]: Short Term Peaking but Momentum Remains

<ul>
<li>We think Futu has proved its ability to retain its mainland China users. The DAU remained stable, and the growth rate of clients’ HK assets outpaced the market in July.</li>
<li>Futu’s overseas expansion is quickly ramping up in Japan, Malaysia, and is progress steadily in Singapore and Australia. We expect the monetization in Malaysia begin in 2024.</li>
<li>We expect Futu 2Q23 revenue 4.5% higher than consensus, our non-GAAP NI 8.7% higher than consensus. We maintain BUY rating on FUTU and raise TP by US$4 to US$55.</li>
</ul>


We think Futu has proved its ability to retain its mainland China users. The DAU remained stable, and the growth rate of clients’ HK assets outpaced the market in July.
Futu’s overseas expansion is quickly ramping up in Japan, Malaysia, and is progress steadily in Singapore and Australia. We expect the monetization in Malaysia begin in 2024.
We expect Futu 2Q23 revenue 4.5% higher than consensus, our non-GAAP NI 8.7% higher than consensus. We maintain BUY rating on FUTU and raise TP by US$4 to US$55.


[Futu Holdings (FUTU US, BUY, TP US$55) TP Change]: Better Outlook in Both Domestic and Overseas

<ul>
<li>Futu reported 1Q23 revenue 12.7%/14.8% higher than our est./cons., non-GAAP NI 21.2%/19.5% higher than our est./cons., mainly due to strong margin financing and security lending activities during volatile market; </li>
<li>Futu’s operation and client trading behaviours remain steady in 1Q23 after the implement of rectification measures from regulators. </li>
<li>On the other side, overseas expansion in Japan and Malaysia may start to kick-off in 2H23; We maintain BUY rating on FUTU and maintain TP at US$51.  </li>
</ul>


Futu reported 1Q23 revenue 12.7%/14.8% higher than our est./cons., non-GAAP NI 21.2%/19.5% higher than our est./cons., mainly due to strong margin financing and security lending activities during volatile market; 
Futu’s operation and client trading behaviours remain steady in 1Q23 after the implement of rectification measures from regulators. 
On the other side, overseas expansion in Japan and Malaysia may start to kick-off in 2H23; We maintain BUY rating on FUTU and maintain TP at US$51.  


[Futu Holdings (FUTU US, BUY, TP US$51) Review]: A Resilient Quarter Under Regulatory Pressure

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)

New CSRC "Provisions" Take a Step Towards Meeting PCAOB Requirements

CSRC has published new Provisions putting the onus of info management on companies, making it easier for the PCAOB to conduct on-site audits. It...

Travis Lundy

Futu Holdings - An Inflection Point Imminent?

Strong retail participation and market performance enabled Futu Holdings to benefit from strong growth. Given a shift in investor sentiment, we...

Jason Yap, CFA

[Futu Holdings (FUTU US, BUY, TP US$55) Earnings Review]: Short Term Peaking but Momentum Remains

We maintain the stock as BUY rating and maintain TP at US$55/ADS, which implies 12.6x PE in 2023, the stock currently trading at 11.3x PE in 2023,...

Blue Lotus Research Institute

[Futu Holdings (FUTU US, BUY, TP US$55) TP Change]: Better Outlook in Both Domestic and Overseas

We expect Futu 2Q23 revenue 4.5% higher than consensus, our non-GAAP NI 8.7% higher than consensus. We maintain BUY rating on FUTU and raise TP by...

Blue Lotus Research Institute

[Futu Holdings (FUTU US, BUY, TP US$51) Review]: A Resilient Quarter Under Regulatory Pressure

Futu reported 1Q23 revenue 12.7%/14.8% higher than our est./cons., non-GAAP NI 21.2%/19.5% higher than our est./cons., mainly due to strong margin...

Blue Lotus Research Institute

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