Earnings Call: Q1 2021

May 19, 2021

Earnings release

Hello, ladies and gentlemen. Welcome to Futu Holdings' first quarter 2021 conference call. At this time, all participants are in a 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 would now like to turn the conference over to your host for today's conference call, Mr. Daniel Yuan, Chief of Staff and Head of IR at Futu. Please go ahead, sir. Thanks, operator. Thank you for joining us today to discuss our first quarter 2021 earnings results. Joining me on the call today are Mr. Leaf Li, Chairman and Chief Executive Officer, Arthur Chen, Chief Financial Officer, 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 contained in 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 would now turn the call over to Leaf. Leaf will make his comments in Chinese, I will translate. Hello, everyone. Thank you for joining the earnings call today. We are excited to announce that we started off the year with robust growth across our operating and financial metrics. Our net paying client addition was approximately 273,000, bringing the total number of paying clients to over 790,000, representing 231% year-over-year growth. Three months into the year, we already achieved 39% of our full-year growth target. For the first quarter, over 70% of the net additions came from Hong Kong, Singapore, and other overseas markets. Organic growth continued to contribute over 50% of our net new paying clients. Despite rapid client base expansion, our quarterly paying client churn rate remains below 2%. Since our official debut in Singapore on March 8th, we have experienced significant growth in client acquisition. Our superior product experience and laser focus on client servicing, coupled with our online and offline advertising and strong word-of-mouth referrals, have helped us quickly capture the mind share of Singaporeans. Characterized by its large and affluent Chinese population, deep and mature capital markets, high penetration of financial services, and rising rate of digitalization, Singapore presents a huge market opportunity, let alone its strategic importance as an entry point into the broader ASEAN market. With the strong growth momentum trending into the second quarter, we are confident to unveil rapid growth in Singapore. In terms of client assets, our average asset balance per paying client climbed to HKD 585,000, a record high since 2016. As of quarter end, total client assets reached HKD 462.2 billion, representing 368% growth on a year-over-year basis and 62% growth on a quarter-over-quarter basis. Total trading volume in the quarter was HKD 2.2 trillion, up 278% year-over-year. U.S. stock trading contributed about 63% of the total trading volume. In the past quarter, we launched OSE futures from the Japan Exchange Group and Singapore stock trading as part of our continued efforts to diversify trading offerings. 富途大象财富在一季度与四家全球知名资产管理公司建立了合作伙伴关系，其中包括美国富国银行、弘收投资、安本标准和纽约梅隆。截至一季度末，超过5.9万名客户持有财富管理产品，同比增长189%。财富管理资产规模达131亿港币，同比增长108%。随着富途大象财富的分销能力越来越受到资产公司的许可，中国顶尖资产公司富国基金决定将其富国中国中小成长基金的港元零售份额在富途大象财富独家发售，该产品为富国基金的旗舰产品之一。另外，我们从一季度开始向专业投资者提供一家世界顶级对冲基金公司的旗舰TMT对冲基金产品。 Our wealth management business, Money Plus, established new partnerships with four reputable asset managers in the quarter, including Wells Fargo, Income Partners, Aberdeen Standard, and BNY Mellon. As of quarter end, over 59,000 clients held total assets of HKD 13.1 billion in wealth management, up 189% and 108% year-over-year respectively. As Money Plus's distribution capabilities get increasingly recognized by asset managers, Fargo entered into an exclusive agreement with us to distribute the Hong Kong dollar-denominated retail share class of its China Small Cap Growth Fund, one of its flagship products in the region. In the first quarter, we started to offer a flagship TMT hedge fund managed by a globally renowned asset manager to our qualified investors. 一季度末，富途I&E累计有152个IPO和IR客户以及200个ESOP客户。我们参与了所有一季度的中概股回港二次上市。此外，我们也是快手、百度和滴滴香港IPO承销团中唯一的一家互联网券商。 As of quarter end, our enterprise business, Futu I&E, had 152 IPO and IR clients, as well as 200 ESOP solution clients. In the first quarter, we participated in all Chinese ADR secondary listings in Hong Kong, and we're the only online broker in the selling groups of the Hong Kong IPOs of Kuaishou, Baidu, and Didi. 越来越多的上市公司在富途社区开通企业号，从而精准触达超过1,400万对港美股感兴趣的零售投资者。截至一季度末，已有500多家上市公司开通了企业号，用企业号丰富的功能来推广产品和服务，分享业务进展，开展业绩会直播。截至目前，已有九家企业号的粉丝数突破了百万。上市公司是我们社区生态中不可或缺的一环，他们的参与极大地扩展了我们平台内容的丰富度，从而也帮助我们增加用户粘性，提升客户留存。 The enterprise account function in our social community gets increasingly adopted by listed companies to engage with over 14 million retail investors interested in Hong Kong and U.S. stock trading. By the end of the first quarter, over 500 listed companies have set up enterprise accounts with us to promote their products and services, provide business updates, and live stream earnings calls. As of today, nine enterprise accounts have amassed over one million followers. Listed companies are an indispensable stakeholder in our ecosystem, and their engagement has greatly diversified our content offerings, thereby increasing user stickiness and retention. 接下来请我们首席财务官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. Please allow me to walk you through our financial performance in the first quarter. All the numbers are in Hong Kong dollars unless otherwise noted. Our total revenue was HKD 2.2 billion, an increase of 349% year-over-year and 86% QOQ. Brokerage commission and handling charge income was HKD 1.3 billion, an increase of 343% year-over-year and 84% QOQ. The growth was mainly driven by 278% year-over-year of our total trading volume increase. Our blended commission rate and our clients' trading velocity remained resilient compared with last quarter. Interest income was HKD 659 million, an increase of 356% year-over-year and 96% QOQ. The increase in margin financing interest income was mainly driven by the strong growth in daily average margin financing balance, higher IPO financing interest income due to a very active Hong Kong IPO market in the first quarter, and an increase in our securities borrowing and lending business. Other income was HKD 271 million, an increase of 370% year-over-year and 69% QOQ. The strong growth was primarily driven by the increase in our IPO subscription service charge income and the currency exchange service income. In terms of costs, our total costs were HKD 443 million, an increase of 276% year-over-year and 83% QOQ. Brokerage commission and handling charges expenses were HKD 214 million, an increase of 327% from HKD 50 million in the first quarter of 2020. The increase was largely in line with the growth of our brokerage commission and handling charge income. Interest expenses were HKD 168 million, an increase of 406% from HKD 33 million in the first quarter of 2020. The growth was primarily due to higher margin financing interest expenses, an increase in our security borrowing and the lending business. Processing and servicing costs were HKD 62 million, an increase of 78% from HKD 35 million in the first quarter of 2020. We continued to increase cloud service expenses and add another 300 throttle controllers connected to the trading system of The Stock Exchange of Hong Kong to execute a large number of concurrent Hong Kong stock trades. Our total gross profit was HKD 1.8 billion, an increase of 373% year-over-year and 87% Q2-on-Q2. Gross profit margin increased from 76% in the first quarter of 2020 to near to 80% in the first quarter of this year, thanks to higher operating leverage as a result of our larger business scale. Our total operating expenses were HKD 490 million, an increase of 149% from HKD 197 million in the first quarter of 2020. To break it down, R&D expenses were HKD 137 million, an increase of 63% from HKD 84 million in the first quarter of 2020. We further invest in the R&D to support our new product offerings. Selling and marketing expenses were HKD 275 million, an increase of 321% year-over-year and 144% Q2-on-Q2. The increase was primarily due to higher branding and marketing spending, especially in the international markets, to cultivate brand image and acquire new clients. If we compare client acquisition costs in the Hong Kong and the China areas alone, our CAC number this quarter is largely in line with that number in the last quarter. G&A expenses were HKD 78 million, an increase of 65% year-over-year. The increase was primarily due to the increase in the headcount for G&A personnel. As a result, our net income increased by 6.5 times to HKD 1.2 billion from HKD 155 million in the first quarter of 2020. In April, we also completed our follow-on offering with net proceeds of approximately $1.4 billion USD. The proceeds will be used to support a larger margin financing balance, our international market expansion, new licensing applications, potential investment and acquisition opportunities, and other general corporate purposes. That concludes our prepared remarks. We'd now like to open the call to questions. Operator, please go ahead. Certainly, sir. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star one on your telephone keypad and wait for your name to be announced. Once again, it is star one to ask a question. We have our first question coming from the line of Kathryn Liu from Morgan Stanley. Please go ahead. Thank you very much for giving me this opportunity to ask questions. This is Kathryn from Morgan Stanley. I have two questions to raise. First is can management please give some introduction or some briefing in terms of the second quarter this year trend in terms of trading velocity, client acquisitions, growth rates, et cetera? Also in light of the first quarter strong growth, will management give guidance in terms of the full year, for example, growth in paying clients, et cetera? Second question is, could management please give some guidance or introduction in terms of the breakdown of clients by geography? Then we note that Singapore could potentially see very strong growth and could management please give some guidance in terms of the growth trend in the Singapore market? Thank you. Kathryn, let me answer your second question first. I will show you our clients breakdown in the first quarter. I will leave the second quarter trend and also your questions about the guidance to Robin and Leaf. Robin will also give you some colors in terms of our client acquisitions and also the client profile in Singapore, this particular market. In the first quarter, on a collective basis, Singapore and the U.S. account for 25% of our new paying clients acquired in the first quarter. The remaining 75% was almost evenly split within Mainland China and also Hong Kong. I think slightly higher in Hong Kong. I will leave Robin and Leaf to give you a comment about your first question. 好的，关于是否要调整指引的问题，虽然一季度我们付费客户的增长是大幅领先了时间进度，但是目前我们没有计划去调整全年的指引。我们的产品在海外具有非常差异化的优势，从三月份进入新加坡市场以来，整个获客趋势非常强劲，而且趋势持续。但是经纪业务与市场表现跟情绪、IPO的数量等客观因素的关联度非常高。那么大家对于今年下半年的市场情况存在一定的分歧，所以我们会根据业务情况评估是否在二季度业绩的时候，看是否要做全年指引的调整。 Although we have achieved 39% of our full year paying client growth target in the first quarter, for the time being, we will not adjust our full year target. We definitely believe that our products have very differentiated value proposition over these markets. In fact, since we entered the Singapore market officially in March, we have some very strong client growth and that momentum has continued into the second quarter. We also reckon that the brokerage business is positively correlated with the market performance, with market sentiments, with the number of IPOs. We understand that right now the market has disagreements over how the market performance will evolve for the rest of the year. We will not adjust our full year paying client growth target for now, and we may give an updated guidance during our Q2 earnings call if needed. 对，另外有一个问题是关于我们最近几个月的换手率的一个问题，这个问题我来回答一下。我们可以看到从2月下旬开始，市场出现了一定的回调，客户交易情绪受到了一些影响，我们觉得这是比较正常的。但是整个市场的整体的关注度还是比较高的，在板块轮动作用下依旧有表现不错的股票，所以整体影响可控。从客户资产角度来看，从3月1日到5月16日，除了个别几个交易日之外，我们每天能够看到客户净流入金依旧是正的。客户的持续入金对我们来说是一个比较正面的信号。对我们来讲，客户数、客户流程和客户资产的意义要远大于这个短期的交易量的一个变化。 Well, we have seen that the market experience a level of pullback since mid-February, and we believe that our users' trading sentiment has been affected more or less, and we think that's perfectly normal. We feel like the market still gets a lot of attention right now, and kind of under the rotation from growth to value stocks, there are still a number of stocks that are performing really, really well. From the standpoint of our client assets, we have seen that from March 1st to last Friday, which is May 16th, almost on every single trading day, we see a positive net asset inflow except for a couple of trading days. It's a very positive sign that our clients are continuously putting assets into our platform. For us, paying client number, paying client retention, and client assets are our three KPIs, and we attach much more importance to these three metrics than some short-term volatilities in the clients' trading volume. Let me just add a little bit to your question about our Singapore clients profile. So far based on what we have seen, again, this is only based on about two and a half months of data that we have seen so far. Our Singapore clients' average and median age is almost identical to that of Mainland China and Hong Kong clients. In terms of their client assets, it's still less. Actually, there's a pretty big discrepancy between the average client assets of our Singapore clients and our Mainland China clients. We think that's normal, and based on our experience, when we enter a new market, it'll take some time for our clients' assets and clients' trading volume to catch up. We'll probably give more details around our client profile in the next couple of quarters. Thank you. Thank you. We have our next question. This is coming from the line of Jackie from China Renaissance. Please go ahead. 感谢管理层给我提问的机会，也恭喜公司这边取得一个非常亮丽的业绩。我是华兴资本的分析师Jackie。我这边有两个问题想请教一下，第一个是关于我们市场的一个竞争的情况。我们也看到，比如说香港这边也看到了一些竞争对手在增加整个市场营销的力度，包括我们也听到了一些像A股的券商也计划去进入港美股的这个市场。那咱们是怎么看待有可能未来加剧的市场竞争，包括我们在内地及香港这边的市场竞争，是不是会担心获客的成本，以及交易佣金竞价的压力？第二个财务的小问题，想看看咱们能不能给一下利息收入的一个大概的breakdown，包括咱们other revenue的breakdown。 Congrats on the great results. I have two questions. Number one is about our competition. We actually saw some competitors, for example, in Hong Kong market increasing their marketing efforts. We also hear some Asia brokers may enter the U.S. and Hong Kong stock trading business. Regarding the potential increasing competition for our markets and customers from mainland and Hong Kong, do we concern about our customer acquisition costs and the trading commission pricing pressure? Number two is about a housekeeping question. Could you provide us a rough breakdown of our interest income and also other revenue? Thank you. Sure, Jackie. Let me answer your second question in terms of housekeeping financial numbers first. I believe the first question to my colleagues, our CEO Leaf. In terms of the interest income breakdowns, roughly a lot interest income arriving from the margin financing account for 60%-65% of total interest income. The remaining interest income actually derived from our clients' idle cash deposit. Also in terms of other incomes, actually, these two major parts, one is IPO subscription service charge, i.e., normally we charge HK$50-HK$100 per person when each participant in the Hong Kong IPOs. The other significant part is the foreign exchange service charge. Many of our clients trade both in Hong Kong and the U.S. markets, they do have the demand for the foreign exchange. These two parts, I think roughly will contribute 70%-75% of our total other income. The remaining part will belong to such as the distribution income from our wealth management products and other service offerings. Thank you. 那我再回答一下关于有关竞争的事情。那么富途的话，其实从诞生第一天就是处于在香港这样一个非常红海的市场。所以在那个时候，其实竞争情况不会比现在变得更弱。所以包括我们也看到那时候在市场上也存在所谓的零佣金这样的一些情况。但是你要知道，在香港它存在一个叫印花税，你会发现其实你的交易成本当中，印花税才是最多的。所以佣金这里，其实当你到一定的位置之后，如果再在佣金上去做一些文章的话，其实它带来的边际效应是非常小的。Daniel先帮他翻译。 From our inception, we operated in a very crowded market, and we don't think the market is going to get less competitive going forward. We indeed have seen some players offering zero commissions, but we don't think the change in the competitive landscape will have a downward pressure on our commission rates. In Hong Kong, there's the stamp duty, which is 10 basis points. For us, we offer three basis points for Hong Kong trading and the marginal benefits for our clients for lowering our commission rate beyond that three basis points is really low. 对，就是像A股券商的话，不少都已经在香港有他们的香港的一个券商实体。那么其实除了A股券商之外，其实我们也有看到更多的互联网的这种券商想要进入到香港市场。 For some of the Asia brokers, they already have Hong Kong licensed entities. Besides, we've also seen some other online brokers that want to enter the Hong Kong local market. 对，因为互联网券商跟富途其实更加相似了，所以这里我想就这个问题在这里多讲一点。 Maybe I'll talk a little bit more about the online brokers due to the similarities in the business model. 对，首先我们肯定是非常欢迎友商进军到香港本地市场，因为更多的友商进入到香港市场，我认为是会有助于我们一起教育市场，让互联网券商获得更为广泛的市场认知。 First of all, we definitely welcome online brokers to enter the Hong Kong market. With more of these players entering the Hong Kong market, we can educate the market together and help the online brokerage industry as a whole gain more industry recognition. 目前市场上提供港股交易服务的互联网券商主要是两类，一类是以富途为代表的，持有香港这边会颁发的港股交易牌照，并且受香港这边会监管的香港持牌互联网券商。另外一类呢，就是它使用的是第三方存管，并不受香港这边会监管的牌照，比如新西兰的牌照，来提供港股交易服务的互联网券商。 There are 2 major types of online brokers that provide Hong Kong stock trading services. The 1st type are the Hong Kong brokers that are licensed by SFC and hold SFC licenses and are regulated by the SFC. Futu is an example of this 1st type. The 2nd type are the online brokers that hold licenses of the 3rd domicile and it's not regulated by the Hong Kong SFC. For example, a license from New Zealand, this is the 2nd type, using a third-party domicile license to provide trading in Hong Kong. 众所周知，香港对于监管的要求显著地高于第三方市场的监管要求，对于发牌也会慎重很多。因此对于第二类互联网券商，如果要在香港持牌，我认为他们需要解决好监管一致性的问题。从监管的角度来看的话，并不会允许存在监管洼地，这也就意味着说它一旦在香港持牌，那么它之前的老客户和之前的业务一定会被要求切断到新的牌照下面。这个问题如果解决不好的话，我认为很大可能就拿不到牌照。而且我想这也是我们看到某个友商过去三年一直在讲说即将拿到牌照，但还一直没有拿到的一个很重要的原因。因为在正常情况下，全新申请一个香港的券商牌照也用不了那么长的时间。 As we all know, the SFC has more stringent regulatory requirements than some other markets and are more prudent when giving out licenses. For the type 2 of online brokers that we just mentioned, if they are to get a license in Hong Kong, they must solve the issue of regulatory incongruity in advance. From the regulatory standpoint, SFC will not allow the online brokers to operate under a more relaxed regulatory framework. This means that once the online brokers hold licenses, they will need to migrate their existing clients and their existing businesses into the new entity that is regulated by the SFC. If this issue cannot be solved very well, it's highly unlikely that they'll get a license in Hong Kong. I think that's probably why another online brokerage peer of ours have been talking about getting a license in Hong Kong soon for the past three years, still have not managed to get one, based on our understanding, under normal circumstances, there's no way that it would take so long to apply for a new Hong Kong brokerage license. 对，其实我们认为友商进入香港本地市场不会对富途的市场份额构成影响。原因有好几个。第一，金融是一个非常重决策的业务，客户放真金白银到一个平台，它是有心理门槛的。富途是有的很多高质量的像腾讯这样的明星机构股东对公司的品牌信任，我们在过去也花了8年的时间在香港培养品牌认知，积累用户口碑，也在不断地占领本地的客户心智。而对于一个全新进入香港市场的金融服务公司来说，想获得客户的信任，需要非常多的时间积累。 Secondly, we don't think that the potential entry of other online brokerage companies will have a negative impact on Futu's market share in Hong Kong. Well, the first reason is that financial services, it really takes a big decision for our clients to choose a financial services platform. There is the psychological barrier for clients to actually entrust their assets with a financial services platform. For Futu, we have very outstanding shareholder base. We have shareholders like Tencent that really instill trust into our brand. On top of that, we have spent the past eight years cultivating our brand image in Hong Kong, gaining user recognition, and capturing the mind share with the Hong Kong local users. For a financial services company that is new to Hong Kong, it will take a lot of time for them to get the same level of trust that we've been able to garner in the past eight years. 其次，新进入市场的平台只有走差异化的路线才能有竞争力，否则很难替代已具有类似产品体验的现有平台。富途已经构建了具有时间壁垒的一个立体的竞争模型，在开户、交易、资讯、社交等各个环节都有非常深度的积累，因为产品能力也达到了业内相对顶尖的水平，友商需要付出大量的时间去追赶。在这个基础上，如果还想要提供差异化的体验，难度会比较大。而我们的创新从来都没有停止。 Secondly, for the newcomers, they can only be competitive if they can offer very differentiated value proposition. Otherwise, it will be very difficult for them to replace the existing platforms. Futu has built a very comprehensive business, has huge entry barriers, and we've invested significantly into our account opening, into our trading infrastructure, market information and services, and social community, etc. Many of our product offerings really set industry standards. The other online brokerage peers need to spend a lot of time to catch up to where we are today, let alone offering differentiated products and services. On top of that, we have never stopped innovating. 第三点就是前面提到的监管一致性的问题。正如前面所讲，有些友商是在没有香港牌照的情况下已经崭露头角，他们在拿到香港的牌照后，大概率会要经历让存量的香港客户重新去进行符合SFC监管要求的KYC和AML流程。这会是一个很繁琐而且是存在一定流失率的一个过程。对于尚未在香港崭露头角的友商来说，在他拿到牌照后，也需要在SFC的强监管下开展严格的开户及KYC的流程，这也都需要熟悉和适应的时间。 The third point is the regulatory congruity issue that we just mentioned. As we discussed earlier, some of the online peers have already started acquiring Hong Kong local clients without a Hong Kong license. After they acquire the license, they probably will spend a lot of time migrating their existing Hong Kong clients to the new entity that is heavily regulated by the SFC and has really stringent KYC and AML procedures. This will be a very cumbersome process, definitely with some sort of attrition. For the other parties that have not operated in Hong Kong so far, after they get the license, they still need to kind of kickstart a very stringent account opening KYC procedure under the supervision of SFC. This will take time for them to adjust to and take time for them to get familiarized with. 第四点就是融资业务的规模跟公司的资本金有着很强的挂钩关系，而且融资的资金是需要通过和银行的长期合作来不断地积累。在香港，融资额度的上限是证券公司资本金的五倍。那么友商们首先也需要投入大量的资金来补充香港证券公司的资本金。另外还需要通过和香港银行达成合作来撬动资金杠杆。香港商业银行一般来说都偏保守，需要经过长期的沟通合作才会逐渐地去提升授信额度，短期内很难快速获得大量资金的支持，这对于IPO打新和日常的margin业务的开展都会产生明显的制约。我们理解，有一些友商是将客户从第三方IB的账户向自己的账户去进行迁移，如果自己的账户体系是在SFC的监管体系之下的话，上述提到的融资资金压力会被进一步地放大。 Fourthly, the margin financing business is highly contingent on the company's capital base, and the margin financing capital needs to be gradually accumulated through the long-term collaboration with the commercial banks in Hong Kong. In Hong Kong, based on SFC's regulation, the margin financing balance that a broker can support is limited to five times of its capital base. First of all, they need to inject a lot of capital into their licensed entity in Hong Kong to bolster their net assets. On top of that, they need to secure additional financing from the commercial banks in Hong Kong. From our experience, the Hong Kong commercial banks are generally very conservative, and they're only willing to offer additional credit lines after kind of a long-term communication and long-term collaboration. It's impractical for these newcomers to garner a lot of capital in a short period of time. This will definitely put constraints on the margin financing business, especially the IPO margin financing business. We realized that some of the other peers are trying to migrate their clients from the Interactive Brokers accounts to their own account system. If their own account system is under the supervision of SFC, the margin financing capital issue that we just mentioned will be further enhanced. 第五点就是港股的交易系统和结算系统需要投入非常多的资金和时间来进行研发。富途花了八年的时间来打造具备高稳定性的高扩展性的系统，系统的可用性达到了99.96%。这样的高性能交易系统和结算系统，它具备很强的技术和时间门槛。友商在进入香港之后，他们的港股交易和结算系统短期内应该大概率会依赖于第三方供应商的系统，也就意味着系统的稳定性和可用性在相当长的一段时间内并不是那么可控。特别是在任何IPO市场极度波动的场景下，可能会很容易出现系统的卡顿甚至宕机的情况。基于这样的一个背景的话，其实在短期内是很难赶上富途能够可以提供给客户的交易体验。 The fifth point is that the Hong Kong execution and clearing system need a lot of capital and time to invest. The R&D is a very lengthy process. Futu spent eight years to construct a highly stable and scalable execution and clearing system with a 99.96% service availability rate. This very advanced trading system has high entry barriers, and when the other brokers enter the Hong Kong market, in the short period of time, they probably need to rely on a third-party vendor to provide this execution system. Which means that the stability of the system will be outside of their control for a considerable amount of time. This may lead to trade congestion issues when there is extreme market volatility or when hot IPOs take place. In the short term, it will be very difficult for them to match the client service and quality that Futu can provide. 最后我想讲的是，我们从来没有停止过进步，我们依然还像当初进入香港市场的那个少年，有更好的竞争的话也会促使我们做得更好。 The last point I want to make is that we have never stopped innovating and progressing, and we still keep that nascent mentality when we entered into the Hong Kong market. We believe the additional competition in the Hong Kong market will push us to do better. 谢谢。 Thank you. Thank you very much. Thank you. Thank you. We have the next question. This is coming from the line of Zeyu Liao from CICC. 到管理层，咱们的业绩再次炸裂。我是中金公司的分析师姚泽宇。在当前咱们的业务已经比较渐入佳境的背景之下，我是想请教一下咱们管理层在新的牌照，比如说其他地区的券商牌照，或者比如说基金代销等等这些牌照方面的一些考虑。另外就是从交易品种的角度，咱们在股票、期权、期货这些产品之外，是否有比如说类似于数字货币的这种考虑？ Thanks, Management. This is Zeyu Liao from CICC. First of all, congrats to our exciting results. I see our existing business are well on track, and I was wondering if there is any possibility that we will apply for new brokerage licenses to serve more customers in other areas, or launch more trading products like Bitcoin or other digital currency. Thanks. Okay, thank you Zeyu. Let me answer your first question. I will leave the second question to my colleagues, our Senior Vice President, Robin Xu, for more service and products in our pipelines. For the new license, actually, I think you're right. We are doing some preliminary studies in other international markets, in particular in the ASEAN countries. As we mentioned in the opening remarks, we do think Singapore is a very important gateway for us to enter into the ASEAN market as a whole. Now it's still in a very preliminary stage. We are doing some feasibility studies in other English language speaking countries as well. 关于交易品种这里面，其实我们之前有在我们的社区里面公布过，数字货币我们目前正在开发中，我们预计会在下半年提供给应该讲叫做海外的客户。然后另外我们还会陆续地去持续接入CME的期货里面更多的一些种类。谢谢。 We are planning to launch crypto trading to our international clients in the second half of this year. We'll plan to roll out more futures under the CME futures. Thank you. Yeah. Thank you. Thank you. We have the next question. This is coming from the line of Zoey Zong from Jefferies. Go ahead. 感谢管理层接受我的提问，我是Jefferies的Zoe。首先恭喜公司取得这么好的业绩。然后我这边就追问一下关于数字货币的问题。因为我们注意到昨天央行发布了三大协会的公告，就是会禁止金融机构和支付机构开展与虚拟货币相关的业务。然后想请教一下Futu，如果之后上线数字货币交易的话，中国对虚拟货币的监管会对公司有所影响？谢谢。 Hi management, thanks for taking my question. This is Zoey from Jefferies. Congratulations on the strong first quarter results. I have a follow-up question on the digital currency. Regarding digital currency, at this point, we have noticed that the People's Bank of China have announced to ban financial institutions and payment companies from providing services related to cryptocurrency transactions. I'm wondering what about Futu's digital currency this year, will China's regulation on virtual currency have any impact on Futu if we launch the digital currency trading? 感谢提问。关于数字货币，这里面我们其实是严格地按照各地的监管规范或者是指引来操作。同时我们这边有在美国以及新加坡，甚至包括香港等地区申请数字货币相关的一些牌照。这个我们内部是比较确定的，应该不会面向中国大陆客户来提供这项业务。谢谢。 We are very much aware of the different regulatory frameworks under different jurisdictions. Actually, we are in the process of applying for digital currency related licenses in U.S., Singapore and Hong Kong. What we know for sure is that we will not offer digital currency trading services to Mainland China users. Thank you. The next one comes from the line of Thomas Hu from BofA Securities. Please go ahead. 谢谢给我这个提问的机会。首先恭喜公司取得了非常强劲的业绩。我这边有两个问题。第一个问题是关于Margin Financing business，就是我们在四月份融资之后，也极大地补充了我们的资本实力，不知道我们会不会有一些策略来提升客户使用融资的比例。因为我们看到在三季度末的时候，融资融券余额占客户资产的比例是5.92%，相比四季度末还是有所下降的，但这可能也是因为季末值跟季中平均值有些不同，但是跟有一些有相比的话，这个比例还是偏低，所以不知道是否在融资之后，我们会有意地去提升这个比例。然后第二个问题是关于客户的获取。我们知道说有50%的客户是来自于organic growth，那不知道剩下的50%的渠道是来自于哪里？尤其是我非常关注来自于ESOP的客户的获取，因为我们知道一季度的时候也有一些非常high-profile的这种IPO的deal，然后不知道这些deal是不是给我们也贡献了非常多的客户。就比如说以快手为例，假设快手股票上市了之后，是否持有快手股票的这些员工就会自动被算为paying client，还是要等他们的股票vested之后才会被算作paying client？那我翻译一下我的问题。So congratulations on the very strong results. I have two questions. The first question is about the margin financing business. After the follow-on offerings in April, Futu further strengthened its capital base. Will you try to increase the ratio of margin financing and security loan balance as percentage of total client assets? The second question is about client acquisition. You mentioned that 50% of the new client is from organic growth. How about the other half? What's the acquisition channel for the other half of clients? Specifically, I pay more attention about the ESOP clients. How much does it contribute to the new clients? How do you record those ESOP clients? Will you record them as a new paying client when the stock is vested, or you will wait until their stock are vested? Thank you. Thank you very much. I will answer the first question. I will leave the second question to my colleagues, Robin and Daniel. Number one, I think we value our paying clients from a DCF value perspective, i.e., we more care about their lifetime values rather than the near-term P&L they can contribute in terms of our top lines or bottom lines. Therefore, I think we will not very aggressively encourage our clients to use the margin, because margin financing involves very high risks. Therefore, I think in our mentality, investment education, how to let our investors know the risk is far more important than our near-term monetizations. If you look at our margin financing balance versus our total client assets ratio, this ratio historically is in the range of 5%-7%. I think definitely after we finish our follow-on placement, we do have more sufficient capital to support our margin financing business, and in particular, our IPO subscription service in Hong Kong. We will not intentionally push up our clients' margin usage unless they know the risks. Thank you. Hi, this is Daniel. I will take your second question on client acquisition. About 50% of our new paying clients are from organic growth, about 15% are from ESOP and group account opening, the rest 35% is roughly evenly split between online and offline advertising, as well as the third-party channel partners. Definitely we think that the high-profile IPOs are conducive to our client acquisition, but it's very difficult for us to attribute certain client base to maybe one or two single IPOs. We generally kind of observe an increase, an uptick in our client acquisition before these IPOs take place. It's very difficult to ascertain which clients come specifically for the IPOs. For Kuaishou's case, like you mentioned, so for Kuaishou's employees that have stock options right now, they are not counted as our paying clients. Thank you. 谢谢。 Thank you. As we do not have any further questions, I would like to hand the conference back to our host, Mr. Daniel Yuan. Please take over. Thank you, operator. Thank you all for joining the earnings call today. On behalf of the Futu management team, I would like to thank you for joining our earnings call. If you have any additional questions, please do not hesitate to ask me or any of our investor relations representatives. Thank you and good night.