Hello, ladies and gentlemen. Welcome to Futu Holdings' second quarter 2022 conference call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a Q&A session. Today's conference call is being recorded. If you have any objections, you may disconnect at this time. I would 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 second quarter 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 risk and uncertainty. 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 approximately 1.4 million paying clients, up 39% year-over-year. Net addition was over 60,000, bringing our first half paying clients growth to 143,000. This was also the 10th consecutive quarter for which organic growth contributed over 50% of new paying clients. In the second quarter, client acquisition was resilient in Hong Kong, where we launched targeted marketing campaigns around the green bond issuance in May and attracted allocation-driven clients to subscribe to the green bond on our platform. We contributed over 1/5 of the overall green bond subscribers, which speaks to our leading brand recognition and superior product experience.
In Hong Kong, we will continue to focus on clients over 30 years old, as our current penetration rate among 30+ Hong Kong residents is at a mere 7.5%. To achieve that, we have rolled out new marketing initiatives and launched new features, including the light trading mode, which offers a more simplified and sleek trading interface, and the regular savings plan for Hong Kong stocks, which caters to clients less interested in market timing. In Singapore, we've realized that the local users are more conservative during market downturn, and thus launched a series of investor education activities to help users understand how to better navigate market turmoil and continue to diversify our product offerings in wealth management. We are encouraged to see that our quarterly client retention rate remained above 98% despite sharp market correction in April and May.
Total client assets decreased 14% year-over-year and increased 12% quarter-over-quarter to HKD 434 billion. The sequential increase was largely due to strong net asset inflow across different regions and, to a lesser extent, rebound of China technology names in June. In Singapore, we continue to acquire higher quality clients. The average asset balance of our newly acquired paying clients in Singapore exceeded SGD 10,000 within three months. This compares to about 9 months for clients we acquired last year. Margin financing and securities lending balance increased 13% quarter-over-quarter, as sentiments around technology stocks improved sequentially.
本季度总交易量为1.3万亿港币，环比增长2%。每股交易量约为8,970亿港币，占总交易量的67%，环比增长6%。在市场波动加剧的情况下，杠杆ETF的交易换手率的升高带动了交易量的环比提升。港股交易量约为4,240亿港币，环比下降5%，主要是中国科技股的整体交易情绪较为平淡。与此同时，我们在香港期货和期权交易的市场份额分别提升至6.7%和13.5%。六月底，我们上线了港股组合期权功能，让客户能够制定复杂的期权交易策略，从而更好地管理风险，达成投资目标。我们相信这一功能的推出将吸引更多的高阶期权交易者。
Total trading volume was HKD 1.3 trillion, up 2% quarter-over-quarter. U.S. stock trading volume was HKD 897 billion, constituting 67% of the total volume and up 6% quarter-over-quarter. The sequential growth was mostly driven by higher turnover of Leveraged and Inverse ETFs amid heightened market volatility. Hong Kong stock trading volume was HKD 424 billion, down 5% sequentially due to muted market sentiment around China tech names in Hong Kong. In the meantime, our market share in Hong Kong futures and options trading climbed to 6.7% and 13.5% respectively. We launched multi-leg options function for Hong Kong stocks by the end of June, which enables our clients to formulate advanced options trading strategies to better manage risk and achieve investment targets. We believe this function will attract more sophisticated options traders to our platform.
财富管理客户总资产为220亿港币，同比增长59%，环比增长5%。截至本季度末，超过20万的客户持有财富管理产品，占有资产客户总数的15%。在加息的背景下，货币基金对我们客户的吸引力不断提升。此外，我们参考安本的资产配置建议后，推出了抗通胀增强组合，以帮助我们的客户应对高通胀环境。在新加坡，我们进一步丰富公募基金的品类和功能，从而带动财富管理资产余额环比增长了377%。
Total client assets in wealth management were HKD 22 billion, up 59% year-over-year and 5% quarter-over-quarter. As of quarter end, over 200,000 clients, 15% of our total paying client base, held wealth management product. The money market funds became increasingly attractive to our clients amid interest rate hike. To help our clients navigate a rising inflation environment, we also launched a model portfolio of global real return strategy in collaboration with Aberdeen. In Singapore, wealth management asset balance increased 377% quarter-over-quarter as we further expanded mutual fund offerings and launched new product features.
截至季度末，我们有276家IPO分销和投资者关系客户，以及519家ESOP客户，同比分别增长48%和97%。超过一千家公司通过企业号在我们的社区中与零售投资者进行交流互动。比亚迪电子和天齐锂业也在二季度入驻富途企业号。今年上半年，我们作为承销商参与了十二中港股IPO项目，在港股IPO的承销数量上并列第一。
As of quarter end, we have 276 IPO and IR clients as well as 519 ESOP clients, up 48% and 97% year-over-year. Over 1,000 companies are now using their enterprise accounts in our social community to communicate with retail investors. Among the new additions in the second quarter are BYD Electronics and Tianqi Lithium. In the first two quarters, we acted as the underwriter for 12 Hong Kong IPOs, tied for first place in terms of the number of Hong Kong IPOs underwritten.
我们相信卓越的用户体验是我们最大的竞争优势。今年上半年，我们发布了99个移动应用和桌面客户端版本，增加了3,989项新功能，同比分别增长21%和52%。这体现了我们对极致产品体验的不懈追求。展望未来，我们将继续为不同地区的客户推出更多的定制化本地功能。
We believe that our superior user experience remains our biggest competitive advantage. In the first half of this year, we continued our relentless pursuit of product experience by releasing 99 versions of our mobile app and desktop clients and adding 3,989 new features, up 21% and 52% year-over-year. Going forward, we intend to launch more customized features for clients of different regions.
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 and Daniel. Now please allow me to walk you through our financial performance in the second quarter. All the numbers are in Hong Kong dollars unless otherwise noted. Our total revenue was HKD 1.7 billion, up 11% from HKD 1.6 billion in the second quarter of 2022. Brokerage commission handling charge income was HKD 1 billion, an increase of 30% year-over-year and 7% quarter-over-quarter. The year-over-year increase was mostly driven by a higher blended commission rate of 7.7 basis points, up from 6.1 basis points in the year-ago quarter, underpinned by greater contribution from derivatives trading.
The quarter-over-quarter increase can be attributed to our commission per share pricing model for US stock trading, as a decrease in the average share price of the stock our client trade can result in a higher blended commission rate. Interest income was HKD 620 million, an increase of 2% year-over-year and 6% quarter-over-quarter. The slight increase year-over-year was due to higher income from cash deposits in the security lending, which was largely offset by lower margin financing income and IPO financing interest income. The quarter-over-quarter increase was mostly due to a higher interest income from cash deposits amid a rising rate environment. Other income was HKD 193 million, down 45% year-over-year and 6% quarter-over-quarter. The year-over-year decrease was driven by a lower IPO financing service income and underwriting fee income.
The quarter-over-quarter decrease was mainly due to lower currency exchange income and enterprise public relations service charge income. Our total cost was HKD 208 million, a decrease of 25% from HKD 279 million in the second quarter of 2022. Brokerage commission and handling charge expenses were HKD 88 million, down 40% year-over-year and 10% quarter-over-quarter. Despite the year-over-year increase in brokerage commission and handling charge income, the expenses declined due to the cost savings from our US security self-clearing migration and upgrade service package with our US clearing house, and the lower IPO subsequent fees. The quarter-over-quarter decrease was mostly due to self-clearing. Interest expenses were HKD 27 million, down 67% year-over-year and 32% quarter-over-quarter.
The year-over-year decrease was mostly due to low expenses for margin financing and IPO financing. The sequential decline was driven by lower lender funding costs as we finance an increasing percentage of our margin book with cash collateral generated from security borrowing. Processing and service costs were HKD 94 million, up 74% year-over-year and 1% quarter-over-quarter. The year-over-year increase was primarily driven by higher cloud service fees to support overseas market expansion and of course, there's a large number of concurrent trades. As a result, total gross profit was HKD 1.5 billion, an increase of 19% from HKD 1.3 billion in the second quarter of 2021. Gross margin was 88% as compared to 82% in the second quarter of 2021. Operating expenses were HKD 747 million, up 12% year-over-year and down 4% quarter-over-quarter.
To break it down, R&D expenses were HKD 292 million, up 69% year-over-year and 3% quarter-over-quarter. The increase was mainly due to an increase in R&D headcount as we continue to support new product offerings, invest in the U.S. self-clearing capabilities and customize product experience in different markets. Selling and marketing expenses was HKD 219 million, a decrease of 42% year-over-year, and a 24% quarter-over-quarter. The year-over-year decrease was due to lower overall marketing and branding spending, especially in international markets. The expenses declined quarter-over-quarter as marketing spending came down due to slower paying client growth. G&A expenses were HKD 211 million, up 118% year-over-year, and 19% quarter-over-quarter. The increase was primarily due to increase in headcount for general and administrative personnel.
As a result, our net income increased by 20% year-over-year and 12% quarter-over-quarter to HKD 639 million. Net interest margin expanded to 37% in the second quarter, as compared to 34% in the same quarter last year, partially attributed to lower tax rate of 10%. This lower tax rate was due to the tax credit benefit from our U.S. self-clearing house. We maintain our long-term tax rate guidance of 12%-14%. The tax benefit could linger another two quarters also. That concludes our prepared remarks. We'd now like to open the call to questions. Operator, please go ahead.
Thank you. If you wish to ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A roster. We will take our first question. Please stand by. The question comes from Cindy Wang from China Renaissance. Please ask your question.
谢谢你。然后也感谢给我这个第一个提问的机会。那我这边有两个小问题想请教一下。 因为我看了一下我们第二季度的新客户数，其实是有一个小幅的环比下滑。那可不可以按照地区，大概跟我们讲一下各地区的新客户数的趋势，以及就是说我们现在看到的七月、八月，因为整个市场的交易量有所下滑，在新客户数上，目前看到的趋势是如何。那第二个问题想请教，就是说新加坡这边我们已经拿到了一个自清算的牌照，我们什么时候会开始做新加坡的自清算？那完成之后是否对新加坡的客户数上面有进一步的帮助。Thanks for taking my question. I have two questions. First question is, can management give us some breakdown for the new customer acquisition by different regions?
Since July and August the stock market turnover are coming down, so what's the new customer acquisition trend in July and August? Please give us some color on that. The second question is related to Singapore, since Futu has got the self-clearing license in Singapore, so do we have any schedule when we will finish the self-clearing for the Singapore stocks? Once we finish the self-clearing, can we have further helping out in terms of the Singapore new customer acquisition? Thanks.
Thank you, Cindy Wang. Let me just answer your second question first. I will leave the first question in terms of the new client breakdown to my colleagues Robin Xu. I think now the most focus of our technology capabilities still lie on our US sales clearing operations. This migration has conducted very smoothly, and so far, we have already migrate over 80% dollar value of our US security, you know, positions from our business partners to our own clearing house. We do expect this exercise will be largely complete by the end of this year. Afterwards, we do think you're right, you know, the self clearing capability in the Singapore market definitely is on our schedules, but we will be follow subsequent to the completion of our US self clearing migration.
你好，我来回答一下第一个问题啊。那关于我们2Q的这个资产客户的分布的话，可以看到我们是，整个大中华地区的有资产客户占比大概是75%，那其中香港会稍微多一些，然后新加坡的占比大概是15%，美国大概是10%。2Q的这个净增有资产客户的分布，那目前来看是大中华地区和海外市场各贡献一半，然后在大中华地区，香港贡献了绝大部分的客户。海外市场中，美国会比新加坡的贡献略多。
Okay, thank you, very clear.
Your next question comes from the line of Zoey Zong from Jefferies. Please ask your question.
哎，感谢管理层接受我的提问啊。首先恭喜公司取得很好的业绩。那我这边有两个问题想请教一下，第一个是我们二季度有95.5 million港币的非经营性损失，可不可以介绍一下主要是来自什么项目？然后第二个问题是我们应该怎么看三季度和下半年的获客成本。那我自己翻译一下。 Thanks management for taking my question. Congratulations on the solid results first. And I have two questions. So first, in Q2, we recorded HKD95.5 million of loss. So could you please provide more color about this item?
My second question is how do we expect the customer acquisition cost in second half? Thank you.
Thank you. I also take your second question first. I think, you're right. Yesterday, you know, the volatility in the capital market definitely have some certain negative impacts in terms of our client positions. You can see our blended CAC numbers is around HKD 3,500 in the second quarter, which is slightly higher than our previous guidance of HKD 2,500- HKD 3,000 . We do think the current market turmoil maybe continue in the near term or even in the whole second half of this year. Therefore, we do think our previous estimation may be a little bit too optimistic. We currently expect the CAC numbers in the second half of this year may maintain at the current level for a while. Can I just could you just repeat your first question regarding the PNL items?
就是我们在那个others, others里面，就是非经营性有一个项目就是95.5 million的这个others，然后不太清楚这个到底是什么。
Sure. The others mainly consists of the unrealized financial gain and the loss. The nature is that we provide certain margin financing to our clients which trade A-share connect. Previously we do, you know, borrowing the offshore RMBs to fund this margin balance. Given the current, you know, the balance sheet situation, actually we have exchanged certain of the positions from our Hong Kong dollar position to the RMB position ourselves. Due to the, you know, the very, you know, volatile RMB Hong Kong dollar movement in May and June, we record the unrealized loss. This is not, this is actually on the cash items. If we look in the long run, we do think it can be a chance to reverse that.
Got it. Thank you.
Thank you. We will take our next question. The question comes from Emma Xu from Bank of America Securities. Please ask your question.
My question is regarding the financial impact of US self-clearing, as well as the US rate hike impact to your financials.
Sure. Let me answer just these two financial number questions. For the self-clearing, as I mentioned before, we have already migrated over 80% of our, you know, U.S. stock positions to our own clearing house. According to the current run rate, we do expect in the second half of this year the self-clearing capability can enhance HKD 200- HKD 250 incremental revenues to our own PNL. Secondly, regarding the interest rate hike, definitely we do think, you know, we are a beneficiary from the rate cycle, given that we will get more interest income from clients' idle cash. Just do some very simple calculations.
If the rate hike do follow the consensus expectation nowadays, say toward the end of this year, the rate will be increased to, say, 3 or 3.25 basis point. In the second half of this year, we can generate additional HKD 200 million-HKD 250 million interest income because of that.
Um,
Just to the second half of this year.
Okay. Yeah. Thank you. That's very clear.
Thank you.
Thank you. We will take our next question. The question comes from Leon Qi from Daiwa. Please ask your question.
Uh,
Thank you for giving me the opportunity to ask this question, and congrats on the very strong results. I have two questions today. Firstly is regarding your new customer acquisition guidance. Appreciate your very strong new customer acquisition in the second quarter, which reached 61,000. Given you had also a very strong customer acquisition in the first quarter, now your first half new customer acquisition has reached well over 50% of your full year guidance of 200,000.
Wondering if management wanna take any revisions to your full-year target of 200,000. The second question is regarding your capital management. We are very delighted to see that the free cash position of the company actually saw sequential increase while the company is doing very decent buybacks. Could management give us any color in terms of the comfortable level of the cash position you wanna hold so that we have some clues to gauge that the amount of capital that you will be kind of made available to return to shareholders? Thank you very much.
Thank you, Leo. I'll let our CEO Leaf Li to answer your first question, and I will take your second question afterwards.
The overall market has recorded pretty poor performance year to date, and we expect this uncertainty to persist for a reasonable period of time in the future. We believe the current market is not that attractive to new clients. We think we'll continue to focus more on the quality of our new clients, the net assets inflow of our existing clients and the unit economics of the various regions, especially in such a sluggish market. We now plan to keep our previous guidance of adding 200,000 net new paying clients, and we may revisit the guidance later on this year. Thank you.
Yeah. For the second question, I think we are still in the early stage of Futu's long-term growth trajectory, so it is too early to tell ideal capital ratios. We should focus. Instead, to give a fixed number, I think what we focus will be our long-term growth potential, especially in the new market, and also further deployment our resources on the key technology operations going forward. Definitely, we will focusing more on the client on the ROE side in the long run. In the near future, I do expect we do not have any, you know, say, dividend payout plans in the foreseeable future.
Okay. Thank you very much.
Thank you.
Thank you. We will take our next question. The question comes from the line of Frank Zheng from Credit Suisse. Please ask your question.
Let me quickly translate my two questions. The first one is on blended fee rate. As we see, fee rate continue to increase in the second quarter on a sequential basis. Can the management provide more color on the drivers behind this climb? Also, will this trend last into the second half? The second question is on IPO market. As Hong Kong IPO market slowly recovers, do we see a recovery in the IPO bridge loan interest income and subscription fee income? In terms of proportion, what is the proportion of IPO bridge income as of total revenue? Thank you.
Sure. I will take these two questions. As I mentioned in the opening remarks, you are right. You do see, you know, on a blended basis, our commission rate continue to hike year-on-year basis and also quarter-on-quarter basis. Largely, I think, is more contributions from the derivative trading, which now roughly accounts for 30% of our total trading commission revenues. But we do not have any, you know, target or, you know, try to encourage people to trade on these, you know, derivative stuff. The other implication is because of the market volatility in the US market particularly. The reason is, we set a commission per share pricing model for our US stock trading.
You can understand that in the second quarter, U.S. markets correct significantly. Decreasing the average share of the stocks our client trade can actually result a higher blended commission rate. This is more due to the market volatilities. For the second question, the contribution from the IPO business actually in history just account for high single digit or low teen numbers of our total revenues. We do think it will, you know. We do not see a very meaningful pickup despite the number of the IPO in Hong Kong start to rebound since June. I think it will still take some time for the market, especially for the retail investors, to build up the further momentum to participate in these transactions. Thank you.
Thank you. I would now like to hand back to Daniel Yuan for closing remarks. Please go ahead.
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 representative. Thank you and goodbye.
This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.