Hello, ladies and gentlemen. Welcome to Futu Holdings Q1 2022 earnings conference call. At this time, all participants are in the listen-only mode. After management's prepared remarks, there will be a question-and-answer session. Today's conference call is being recorded. If you have any objections, you may disconnect at this time. I'd now like to turn the conference over to your host for today's conference call, Daniel Yuan, Chief of Staff and Head of IR at Futu. Please go ahead, sir.
Thanks, operator, and thank you for joining us today to discuss our Q1 2022 earnings results. Joining me on the call today are Mr. Leaf Li, Chairman and Chief Executive Officer, Arthur Chen, Chief Financial Officer, and Robin Xu, Senior Vice President. As a reminder, today's call may include forward-looking statements which represent the company's belief regarding future events, which by their nature are not certain and are outside of the company's control. Forward-looking statements involving inherent risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from those containing any forward-looking statements. For more information about the potential risks and uncertainties, please refer to the company's filings with the SEC, including its registration statement. With that, I will now turn the call over to Leaf. Leaf will make his comments in Chinese, and I will translate.
Thank you all for joining us today. As of quarter end, we had 1.3 million paying clients, representing a 68% growth year-over-year. In the Q1 , we added approximately 82,000 paying clients, and we are well on track to deliver on our prior guidance of adding 200,000 paying clients in 2022. This is also the ninth consecutive quarter to which organic growth contributed over 50% as new paying clients. In Hong Kong, client acquisition picked up as we leveraged our strong brand positioning, leading product offering and sound financial standing to attract clients and assets from smaller sized brokers suffering from plummeting client engagement amid a weak equities and IPO market. Our quarterly paying client retention rate returned to the pre-headline news level of over 98%.
Client retention in Singapore improved for every quarter since we launched the business as we optimize client acquisition channels and incentives through rapid iteration. Despite dampened market sentiments, users continue to engage actively with a growing portfolio of content, products, and services in our ecosystem. Average DAU exceeded 1 million, and average user time spent was around 30 minutes for all trading days in March. Our DAU also exceeded 1.2 million for the first time. Total client assets declined 16% year-over-year, and 5% quarter-over-quarter. The sequential decline can be attributed to sharp market depreciation, partially offset by robust net asset inflow across markets. Notably, total client assets in Singapore increased by 15% sequentially, despite challenging mark-to-market impact. We continue to see an inflow of high-quality clients in Singapore.
For clients that we acquired in January, for example, their average asset balance almost doubled by March.
客户降低了杠杆。本季度总交易量为1.3万亿港币，环比增长8%，其中美股交易量占比64%。中国科技股和杠杆ETF的交易换手率升高，带动了美股和港股交易量提升。美股交易量环比增长9%，港股交易量环比增长11%。与此同时，我们在香港期货和期权交易市场的份额首次超过了6%和12%，从而也推动了综合佣金率的进一步提升。在第一季度，我们持续扩充交易产品种类，包括在香港推出VIX期货，为新加坡的AI客户提供两种新的算法订单类型，以及在澳大利亚提供美股、澳股和ETF交易功能。[Foreign Language]
While we observed a meaningful uptake in securities lending balance, margin financing balance slipped sequentially as our clients deleveraged some of their margin positions amid market turmoil. Total trading volume was HKD 1.3 trillion, up 8% quarter-over-quarter, of which U.S. trading constituted 64%. Higher trading turnover in China tech names as well as leveraged and inverse ETFs contributed to the 9% and 11% sequential growth in U.S. and Hong Kong stock trading volume. Meanwhile, our market share in Hong Kong futures and options trading climbed to over 6% and 12% respectively for the first time, driving a further increase in blended commission rates.
In the Q1 , we continued to broaden our trading product offerings by launching VIX futures in Hong Kong, two new types of algo orders for accredited investors in Singapore, as well as U.S. and Australian stocks and ETFs in Australia.
财富管理客户总资产为210亿港币，同比增长59%，环比增长11%。截至本季度末，超过13%的有资产客户持有财富管理产品。我们继续面向新加坡客户推出新的基金产品种类，包括货币基金和派息基金。我们与纽约梅隆投资管理和易方达资产管理（香港）有限公司合作，为富途证券香港的客户提供多元化资产配置策略。 [Foreign Language]
Total client assets in wealth management were HKD 21 billion, up 59% year-over-year and 11% quarter-over-quarter. As of quarter-end, over 13% of our paying clients held wealth management positions. We continued to expand fund offerings for Singapore clients, including money market funds and dividend funds. We collaborated with BNY Mellon Investment Management and E Fund Hong Kong to provide diversified asset allocation strategies for clients with Futu Securities International (Hong Kong) Limited.
截至本季度末，我们拥有258家IPO分销和投资者关系客户，以及459家ESOP客户，同比分别增长70%和103%。在第一季度，我们新增59家ESOP客户，包括一脉通和第四范式。我们也开始在新加坡扩展企业服务，在一季度参与了多宗市场热度很高的ETF发行项目。
As of quarter end, we had 258 IPO and IR clients, as well as 459 ESOP clients, up 70% and 130% year-over-year. During the Q1 , we added 59 ESOP solutions clients, including MetLife Technology and 4Paradigm. We also expanded our enterprise service footprint in Singapore by participating in several high-profile ETF IPOs.
接下来有请我们的首席财务官Arthur介绍我们的财务表现。
Next, I'd like to invite our CFO, Arthur, to discuss our financial performance.
Thanks, Leaf Li and Daniel Yuan. Please allow me to walk you through our financial performance in the Q1 . All the numbers are in HKD, unless otherwise noted. Our total revenue was HKD 1.6 billion, down 26% from HKD 2.2 billion in the Q1 of 2021. Brokerage commission handling charge income was HKD 968 million, a decrease of 27% year-over-year and an increase of 13% Q-over-Q. The year-over-year decrease was mainly attributable to lower trading volume of a very high base in the Q1 of 2021, partially offset by a higher blended commission rate of 7.3 basis points. The Q-over-Q increase was mainly driven by sequential growth in trading volume.
Interest income was HKD 575 million, a decrease of 13% year-over-year, and 7% quarter-over-quarter. The year-over-year decrease was mainly due to lower interest income from securities lending business and the lower IPO financing interest income in the very inactive IPO market. The quarter-over-quarter decrease was mostly attributed to lower margin financing income as clients deleveraged. Other income was HKD 98 million, down 56% year-over-year and a 23% quarter-over-quarter. The year-over-year and the quarter-over-quarter decrease was both primarily due to lower IPO financing service charge income, currency exchange service income, and underwriting fee income. Our total cost was HKD 228 million, a decrease of 49% from HKD 443 million in the Q1 of 2021.
Brokerage commission and the handling charge expenses was HKD 96 million, down 55% year-over-year and up 9% quarter-over-quarter. Brokerage commission expenses didn't move in tandem with brokerage commission income due to an upgrade of service package. It was mainly due to lower IPO financing interest expenses and the lower interest expenses associated with our stock lending business. Interest expenses recorded a steeper decline than the interest income due to lower blended funding costs as we further diversify our funding sources. Processing and servicing costs were HKD 93 million, up 50% year-over-year and 26% quarter-over-quarter. The increase was primarily driven by higher product service fees to support overseas market expansion and the processing of higher number of concurrent trades.
As a result, total gross profit was HKD 1.4 billion, a decrease of 20% from HKD 1.76 billion in the Q1 of 2021. Gross margin was 86% as compared to 80% in the Q1 of 2021. Operating expenses was up 53% year-over-year and is down 9% quarter-over-quarter to HKD 748 million. R&D expenses were HKD 282 million, up 160% year-over-year and 4% quarter-over-quarter. The increase was mainly due to higher R&D headcount as we continue to invest in U.S. self-clearing business and to support our new product offering in existing and the new markets.
Selling and marketing expenses was HKD 288 million, an increase of 5% year-over-year and a decrease of 15% Q-over-Q. The year-over-year increase was mainly due to increased selling and marketing personnel to support international market expansion, though largely offset by lower marketing spending. G&A expenses was HKD 178 million, up 128% year-over-year and down 18% Q-over-Q. The rise was primarily due to increase in headcount for G&A personnel as we opened more international offices. As a result, our net income decreased by 51% year-over-year and increased by 15% Q-over-Q to HKD 572 million. Our effective tax rate for the quarter was 11% and net margin was close to 35%. That concludes our prepared remarks. We'd now like to open the floor to questions. Operator, please go ahead.
Thank you. We will now begin the question and answer session. If you wish to ask a question now, please press star one on your telephone and wait for your name to be announced. If you wish to withdraw your request, please press the pound or hash key. Please stand by while we compile the question and answer roster. Once again, if you wish to ask a question, please press star one on your telephone. Our first question comes from the line of Emma Xu from Bank of America Securities. Please ask your question.
Oh, can you hear me, Emma?
Oh, oh. Thank you
Emma. Given that, you know, this is the Q1 earnings call, we're more focused on the, you know, Q1 situations. I think, you know, Leaf can give you some more high level qualitative color, in terms of quarter to date situation. Maybe I can answer your second question first. I think the trend which we witnessed, the market consolidation, especially in Hong Kong markets, continue to accelerate, in the Q2 to date. Given that we've seen, number one, more and more small players start to, you know, exit from the market. We can see, you know, some small brokers, including some, you know, even big ones such as, E-Trade Shenzhen, I-Access,
Close down their office in Hong Kong in the Q1 . Secondly, we see more, you know, client assets migrations from these small brokers to these leading players such as, you know, Futu, et cetera. I think maybe we can give you some more colors in terms of Q2 overall situation.
关于Q2到现在的情况，我们其实还是能够看到，整个获客受到行情的影响是比较大的。能看到这个地方的客户增长有所放缓。具体分市场来看，大中华地区的表现较为平稳，香港继续有较好的表现。如同前面讲的，我们也看到新加坡客户在持续稳定地入金。总体来讲，净入金的势头表现很强劲，但是客户的总资产受到市场影响，依旧有单位数的环比下降。谢谢。 [Foreign Language]
I think the client acquisition pace was to some extent affected by market performance, and we have seen client acquisition slow down a bit across various regions. By market and Greater China Region, client acquisition remains largely stable, with Hong Kong outperforming, as Arthur mentioned on the back of market consolidation. In Singapore, we continue to see the clients entrust us with more of their assets. Despite the robust momentum of net asset inflow, total client assets still experienced a single-digit Q-on-Q decline so far, largely due to this mark-to-market impact.
Thank you.
另外就是我可以分享一下关于新加坡和美国的Q1客户的cohort的情况。那新加坡这边就是我们的客户cohort来看，净入金、户均资产都有所提升。那截止Q1末，我们的新加坡客户的户均资产超过九千新币，环比有一个不错的提升。另外就是最近几个月获客的，获得的客户在首月的户均净入金提升到了六千新币，那这个数字相对于去年刚进入不久后获客的这部分客户来说，是大概需要三到六个月才能达到这样的一个目标。另外就是我们可以看到新加坡的客户在数量提升的同时，质量也在不断地提升，那这符合我们对新加坡市场拓展的一个整体预期。那另外一个就是美国。那美国我们的获客虽然在Q1保持了一个较快的增长，但是我们的户均资产是有所下降。那我们也希望今年把更多的侧重点放在提升客户质量上。另外就是我们对于不同渠道的这个投放激励门槛在不断地调整，主要是用来测试各类奖励针对不同画像客户的一个获客效率，从而使得我们新增的客户的数量和质量、户均资产能够出现一些波动。好，麻烦Danny。 [Foreign Language]
Yeah. We're gonna share some color on, you know, our Singapore and U.S. client cohort. In Singapore, we saw robust growth in both net asset inflow and average client assets. As of the end of the Q1 , average assets per paying client in Singapore have exceeded SGD 9,000, which represents a sound quarter-over-quarter growth. For example, for the clients that we acquired in the most recent quarter, their net asset inflow in the quarter increased to around SGD 6,000, which could only be realized in about three-six months for those clients that we acquired right after we launched in Singapore. Generally, we saw both improving quality and quantity of clients in Singapore, which is in line with our overall expectations when we launched in Singapore. A little bit about our U.S. business.
Despite the rapid growth of clients in the U.S. in the Q1 , average assets per client still suffered a decline. For the rest of the year, we'll put more emphasis on improving client quality. We also continue to adjust our client incentives for different client acquisition channels in order to test the client acquisition efficiency for clients with different profiles. This justifies certain fluctuations in the number of new clients and average assets per client in the U.S. Thank you.
Thank you. That's very helpful.
Thank you. Our next question comes from Leon Qi from Daiwa. Please go ahead.
Thanks a lot for taking my question.
非常感谢管理层给我这个提问的机会，我是大和证券齐小阳。今天想请教管理层两个问题。第一个是关于交易方面，刚才管理层也讲到，我们的这个平均的佣金率有一个提升，在一季度，这个是因为我们除了这个股票之外，其他有几项的这个衍生产品其实都取得了非常好的交易量，还推了一些这个algo的新产品，就想了解一下管理层怎么长期来看，怎么看我们这个交易当中的股票和这些衍生产品的比例，我们长期有没有一个这个比较ideally的mix，就是在这个股票和非股票产品之间，以及不知道管理层能不能给我们分享一下我们接下来，在这几个主要市场有一些怎么样的，什么样的新产品，可能是我们打算推的这个pipeline。那第二个问题呢，就是关于，其实我记得在上一次这个conference call上，管理层提到了一个这个R&D投入的一个指引，那就想去跟进一下，我们现在R&D的这些投入到了怎么样地步，和我们之前预期是不是有变化，因为毕竟看到我们这个R&D增长还是比较快，不知道这个花的跟我们的预期是怎么样的，是不是可以按照我们上一次讲的这个，在一两年内就见到效果。好，我这个先问一下。 [Foreign Language]
I have two questions today. First one is on the trading side. I appreciate that management mentioned in your opening remarks that the blended commission rate actually saw a quite sizable uplift. This is mainly because of a number of new non-cash equity products launched, such as inverse ETFs, index futures, and the two algo products in Singapore. Just wondering, over a longer time horizon, does management have any ideal split in the trading volume between cash equity and derivative products? Also, if possible, I appreciate management sharing some color on our upcoming pipeline in the derivative products in our major markets. The second question is that I'm just wondering if management could give any updates on the progress of your R&D expenses.
Noted that if you are investing heavily on the R&D side, just wondering if you have any updates compared with the guidance given a quarter ago on the timing when you could see the results of these investments. Thank you very much. 非常感谢.
Thank you, Leon. This is Arthur. I will take these two questions. Number one, just give you a little bit of sense about, you know, derivative trading's contributions for our total trading commission. Derivative accounts roughly 30% in this quarter.
I think the contribution from this derivative in this, you know, in the Q1 was particularly high due to, you know, the market conditions. A lot of investors looking for instruments to do the hedges when the markets, you know, regardless in the U.S., Chinese ADRs or Hong Kong markets was quite volatile in the Q1 . If you look at our long-term strategy, I think number one is we do not encourage people to trade these derivatives. I think the guiding principle for us is to let investors understand the risks associated with these, you know, very complicated trading instruments. But at the same time, definitely we, you know, after we provide sufficient investment education, we do want investors to use these instruments to make a much better risk reward returns.
Versus other, you know, the online brokers such as Robinhood or, you know, other U.S. players, you can see their derivative revenues contribute much higher of their total revenues compared with us, which accounts for roughly, you know, 45%, even to 50% above. Therefore, I think, you know, our current 30% contribution is healthy. We do think at the same time there is a huge room for, you know, the Hong Kong derivative development given that more and more Chinese ADRs go back to the Hong Kong, there will be more, you know, market trading liquidity in this markets, which definitely will be a huge plus for our derivative business in Hong Kong down the road.
For your second question, the R&D expenses, as we provide certain guidance in term of staff headcount increase this year. In the beginning of this year, we project roughly, you know, 20% headcount yearly increase. We maintain this budgets so far. I think, you know, in the Q1 , roughly our headcount increased, you know, 5% Q-on-Q basis, therefore everything is on track. Most of our R&D expenses actually belong to the salary and the, you know, the bonus for our R&D personnel. I do think, you know, they work very hard to, you know, make the things forward, especially for some key projects such as, you know, U.S. self-clearing and also some new products to be launched in the H2 of this year.
Oh, that's very helpful. Thank you, Arthur. 非常感谢 Arthur.
Thank you. Thank you.
Thank you. Our next question comes from Zoey Zong from Jefferies. Please ask your question.
感谢管理层接受我的提问。我这边有两个问题想请教一下。第一个是我们看到Q1的获客成本还是有比较明显的Q on Q decline。想请教一下我们应该怎么看Q2和以后的获客成本趋势呢？第二个想请教一下，就是我们三月八号在澳洲展业以来，有没有一些澳洲用户数量、户均资产、获客成本的数据可以分享一下。谢谢。 [Foreign Language] Thank you management for taking my questions. I have two questions. My first question is on customer acquisition cost. We have seen a Q on Q decline in customer acquisition cost in Q1. Wondering how should we think about the trend in Q2 and future? My second question is that since we launched our business in Australia on eighth March, so could you please provide some color about the user traffic, client assets, paying client and the customer acquisition cost in Australia? Anything else, anything will be helpful. Thank you.
Thank you, Billy. I will leave the second question to Leaf, and I will address your first question regarding the CAC. You are right. I think, you know, the overall CAC cost in the Q1 is around HKD 3,500, surpass our, you know, the budget of HKD 2,500-HKD 3,000 in the beginning of this year. The reason is, you know, in the Q1 , actually, we have some, you know, advertisement campaign commitment, which we have already made last Q4. These, you know, campaigns has been carried forward to the Q1 . In the remaining three quarters, we do think, you know, there can be sequential decrease in terms of absolute CAC amount.
We hopefully, you know, you know, it can be, you know, back to the range of 2,500- 3,000 something. At the same time, I think, as Robin mentioned before, this year, alongside the number of new paying clients, we'll be more focusing on the quality of our new paying clients, as well. Therefore, besides the client acquisition costs, we'll also, you know, take into the considerations of asset client asset acquisition costs as well. Yeah. As you mentioned, we officially launched in Australia on March 8th, which is about three months ago. Since then, we have mostly been focusing on building the local team and exploring marketing strategies. We think there's a lot of growth prospects in Australia and, we'll wait to see more data. Thank you.
Thank you very much.
Thank you. Our next question comes from Zeyu Yao from CICC. Please ask your question.
Thanks management. As we observed, Futu has acquired many clients from other brokers in the last few months, and accelerate the market share gain as the leading platform. We believe Futu will be the potential winner in the coming sector consolidation among this market share market. Could you give us more color about the reason why so many clients from our competitors choose to transfer their accounts to Futu? And what's the target of Futu's market share in stock and the derivative in Hong Kong market or Hong Kong retail market? Thank you. Thank you, Zeyu. I will take these two questions. I think number one, you're right, we made very encouraging progress in the Hong Kong market in the Q1 .
Actually, you know, if we look at net asset inflows in the Q1 , it's actually the second best, you know, the quarters in terms of net asset inflows in Hong Kong. We do think, you know, Hong Kong will face a very significant industry consolidations, and it will be, you know, the leading players, like Futu will be definitely benefit from this trend. You know, besides these new client we acquired, I think, in Q1 and going forward, we were also focusing on our existing clients asset inflows. In particular in the Q1 , we do a lot of, you know, proactive marketing campaigns to attract our existing clients to migrate more assets to Futu from other brokers or even from the banks.
Therefore, we can see, you know, more asset inflows generating from our existing clients. Secondly, we do think the industry dynamics in Hong Kong will become more benign, given that, you know, certain of our peers start to strategically exit from the Hong Kong markets. In terms of the product offerings, definitely there will be a lot of new exciting product pipelines in the H2 of this year. For the trading perspective, we are looking for, you know, more ETFs trading starting from the H2 of this year. We will more cater to certain institutional investors' demands in Hong Kong trading and U.S. trading as well.
For your second question, in terms of the long-term market share, I think now on the cash equity side in Hong Kong, our market share is around 2%-3%, you know, versus our peers in the Asia markets or in other regions, we do think, you know, there are still ample room to consolidate. For derivatives in the past 12 months, our market share in the Hong Kong futures is in the range of 5%-8%. We are very confident we will get more market shares in this particular niche market. Also at the same time, the whole pie of the Hong Kong derivatives, we are very confident we have a very meaningful upside going forward as well.
For the option trading in Hong Kong, our market share now is around the 10%. I think we may close to the ceiling, you know, gradually. 10% market share from a retail broker perspective has been already very high. Thank you.
Thanks, Arthur. Very helpful. Thank you.
All right. Thank you all very much for your questions. We have now reached the end of the question and answer session. I'll now turn the call back to Daniel for closing remarks.
That concludes our call today. On behalf of the Futu management team, I would like to thank you for joining us. If you have any further questions, please do not hesitate to contact me or any of our investor relations representatives. Thank you and goodbye.
Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect.