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Will trading volume growth continue to lift Futu’s share price?

The Futu [FUTU] share price was trending lower ahead of its second quarter earnings announcement on 31 August. Shares in the digital broker and wealth management group had been on a rocket ride for the best part of the past 12 months, rising 489.6% from $32.17 at the close on 30 August 2020 to $189.70 at the close on 19 February. 

The Futu share price was driven forward by growth in trading volumes as investors tried to capitalise on market uncertainty during the COVID-19 pandemic, the rise of digital trading and demand from its core affluent Chinese customers looking for wealth management services.

The Futu share price then dipped to $104.43 at the close on 13 May as fears grew over tighter Chinese regulation on technology stocks, following Alibaba’s [BABA] huge $2.8bn antitrust fine. 

The Futu share price dropped further from $104.88 at the close on 29 June to $83.30 at the close on 19 August as fears over Chinese regulations, including data security and pre-IPO disclosures, resurfaced.

But ahead of second quarter earnings, it recovered to close at $94.76 on 30 August, marking a 194.56% increase over the same date last year. 

In comparison, trading peer Robinhood [HOOD] has seen its shares increase by 25.3% since listing on 29 July. Meanwhile, Interactive Brokers’ [IBKR] shares rose 21.7% in the past 12 months (through 30 August). The Futu share price has also outperformed the S&P 500’s 29.1% rise over the last 12 months.


Trading volume growth lifts Q1 earnings 

In the first quarter of 2021, Futu reported total revenues up 349.4% to $283.6m and gross profit up 372.6% to $226.6m. 

The company’s total number of users climbed 69.7% to 14.2 million and total trading volumes climbed 277.5%. It had 59,000 wealth management clients, up 188.6%. 

Of its new client additions, 70% came from Hong Kong and Singapore, where it officially launched its digital platform moomoo on 8 March,and other overseas markets.

The Futu share price increased from $124.29 at the close on 18 May to $125 at the close on the announcement day of 19 May. By 26 May, the share price had reached $138.75.

“Our superior product experience and laser focus on client servicing, coupled with our online and offline advertising and strong word of mouth referral have helped us quickly capture the mindshare of Singaporeans,” Leaf Hua Li, Futu’s chairman and CEO, said after the announcement. “We are convinced that the broader Southeast Asian market offers huge runway for growth.”


China market set to lead long-term growth

The group reported total revenues up 129.3%year over year to $203.1m and net income up 125.8% to $68.7m. The total number of paying clients jumped 230.2% to just over 1 million, with total user numbers up 66.8% to 15.5 million.

Trading volumes rose 104.3% to HK$1.3trn with total client assets in its Money Plus wealth management business up 59.2% to HK$13.8bn. It also established partnerships with seven new asset managers, including Goldman Sachs [GS] and UBS [UBS]. 

“The net addition of paying clients was our second-best quarter in history. We are encouraged to see that Singapore contributed to roughly half of this net addition, which underscores our product appeal and the huge untapped market opportunity in Singapore,” Hua Li said. “Organic growth continued to contribute over half of our new paying clients, with this percentage even higher in Singapore. Our quarterly paying client retention rate remained high at 97.8% despite rapid client growth and equities market pullback.”

The results, however, missed Zacks’ consensus estimate for second quarter revenues to come in at $208.52m, up 135.03% from the same period last year. In pre-market trading, the Futu share price was down 2% at circa $93.

Analysts, however, remain confident about the long-term growth of the company in China. The drivers will be digital trading and the growing need for wealth management services given the continued rise of the Chinese middle class.

BOCOM has a buy rating and a $142 price target, with Bank of America also holding a buy rating and a $195 price target.

Concerns over Chinese government regulations continue to hang over the tech sector in China, and that includes Futu. But looking at the long-term fundamentals of growth — digital trading and managing the wealth of Asia’s burgeoning middle class makes it a stock to watch.

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