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?

Fintech & EM-focused Analyst, KT Capital Group

Alec Tseung

Fintech & EM-focused Analyst

Equity Capital Markets

Robinhood Markets  / Equity Capital Markets

Sheerly looking at Robinhood’s recent financial performance, one might conclude it has embarked on an impressive growth journey and could be a recent success story of Silicon Valley.The payment for order flow generates the majority of its revenue as it sells the clients’ orders to the market makers to fill. As such, Robinhood’s revenue still depends heavily on the users’ trading frequency and volume even though it doesn’t take any commission out of the trades.The company’s rumored IPO valuation of $40 billion represents a significant premium to its peers. It is hard to justify such a premium since it is difficult to gauge Robinhood’s future growth which is largely dependent on its users’ trading frequency and volume in the future.In addition to the company’s over-reliance on the payment for order flow and its potentially rich valuation, there are also significant regulatory concerns. The downside risk is simply too high and outweighs any growth potential the company could still have in the long run.

Sheerly looking at Robinhood’s recent financial performance, one might conclude it has embarked on an impressive growth journey and could be a recent success story of Silicon Valley.The payment for order flow generates the majority of its revenue as it sells the clients’ orders to the market makers to fill. As such, Robinhood’s revenue still depends heavily on the users’ trading frequency and volume even though it doesn’t take any commission out of the trades.The company’s rumored IPO valuation of $40 billion represents a significant premium to its peers. It is hard to justify such a premium since it is difficult to gauge Robinhood’s future growth which is largely dependent on its users’ trading frequency and volume in the future.In addition to the company’s over-reliance on the payment for order flow and its potentially rich valuation, there are also significant regulatory concerns. The downside risk is simply too high and outweighs any growth potential the company could still have in the long run.

Robinhood IPO: Downside Risk Could Outweigh Any Potential Future Upside

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

<a href="https://www.smartkarma.com/entities/up-fintech-holding-ltd" target="_blank" data-smartkarma-citation="entities:27957:1" rel="noopener">UP Fintech (TIGR US)</a> is a leading online brokerage firm. Its mobile and online trading platform enable investors to trade in equities and other financial instruments on multiple exchanges around the world. Up Fintech has launched an ADS follow-on to sell 6.5 million ADSs. At the last close price of $26.79 per ADS, the placing would raise gross proceeds of $174 million. The placing follows the convertible bond issuances in February and April 2021 which raised $155 million. <div class="content-highlight">Up Fintech’s shares are up 3.4x YTD but down 27% from its February highs due to the recent sell-off on high growth tech stocks. The strong YTD performance is supported by the large addressable market opportunity, strong growth and rising margins. However, Up Fintech trades at a frothy and undeserved premium multiple in comparison to <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>, the key listed peer, in our view. Consequently, we would be inclined to pass on this follow-on ADS offering. </div>

UP Fintech (TIGR US) is a leading online brokerage firm. Its mobile and online trading platform enable investors to trade in equities and other financial instruments on multiple exchanges around the world. Up Fintech has launched an ADS follow-on to sell 6.5 million ADSs. At the last close price of $26.79 per ADS, the placing would raise gross proceeds of $174 million. The placing follows the convertible bond issuances in February and April 2021 which raised $155 million. Up Fintech’s shares are up 3.4x YTD but down 27% from its February highs due to the recent sell-off on high growth tech stocks. The strong YTD performance is supported by the large addressable market opportunity, strong growth and rising margins. However, Up Fintech trades at a frothy and undeserved premium multiple in comparison to Futu Holdings Ltd (FUTU US), the key listed peer, in our view. Consequently, we would be inclined to pass on this follow-on ADS offering. 

Up Fintech (Tiger Brokers) ADS Placement: Trade Creates Losers

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

<a href="https://www.smartkarma.com/entities/up-fintech-holding-ltd" target="_blank" data-smartkarma-citation="entities:27957:1" rel="noopener">Up Fintech (TIGR US)</a> aims to raise around US$165m via a follow-on offering. This will be the first raising by the company since it was listed in 2019. It comes close on the heels of the US$1.7bn raising by its competitor <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> in Apr 2021.We covered the IPO across a series of note, links to which are below:<ul>
<li><a href="https://www.smartkarma.com/insights/futu-holdings-ipo-quick-note-comparison-with-tiger-brokers-same-market-different-economics" target="_blank" rel="noopener">Futu Holdings IPO Quick Note - Comparison with Tiger Brokers - Same Market, Different Economics</a></li>
<li><a href="https://www.smartkarma.com/insights/up-fintech-tiger-brokers-pre-ipo-quick-note-much-too-reliant-on-ibkr" target="_blank" rel="noopener">Up Fintech (Tiger Brokers) Pre-IPO Quick Note - Much Too Reliant on IBKR</a></li>
<li><a href="https://www.smartkarma.com/insights/up-fintech-tiger-brokers-ipo-quick-take-it-s-not-like-futu-won-t-perform-like-it-either" target="_blank" rel="noopener">Up Fintech (Tiger Brokers) IPO Quick Take - It’s Not like Futu, Won’t Perform like It Either</a></li>
<li><a href="https://www.smartkarma.com/insights/up-fintech-tiger-brokers-ipo-trading-update-first-day-volume-was-higher-than-futu-close-to-qtt" target="_blank" rel="noopener">Up Fintech (Tiger Brokers) IPO Trading Update - First Day Volume Was Higher than Futu, Close to QTT</a></li>
</ul>In this note, we will run the deal through our ECM framework and talk about the deal dynamics.

Up Fintech (TIGR US) aims to raise around US$165m via a follow-on offering. This will be the first raising by the company since it was listed in 2019. It comes close on the heels of the US$1.7bn raising by its competitor Futu Holdings Ltd (FUTU US) in Apr 2021.We covered the IPO across a series of note, links to which are below:
Futu Holdings IPO Quick Note - Comparison with Tiger Brokers - Same Market, Different Economics
Up Fintech (Tiger Brokers) Pre-IPO Quick Note - Much Too Reliant on IBKR
Up Fintech (Tiger Brokers) IPO Quick Take - It’s Not like Futu, Won’t Perform like It Either
Up Fintech (Tiger Brokers) IPO Trading Update - First Day Volume Was Higher than Futu, Close to QTT
In this note, we will run the deal through our ECM framework and talk about the deal dynamics.

Up Fintech (Tiger Brokers) Placement - Needs a Large Correction, Just like Futu

Thematic (Sector/Industry)

This Original aims to identify the key investment opportunities among the listed brokers in the three major East Asian countries - China, Japan, and Korea. By looking at the development of the brokerage sectors in these three countries, we observe a general trend where upstart online brokers first compete against the more established brokers based on their cost and technological advantages. This then pushes the more established brokers to either focus on more lucrative wholesale businesses or adopt and invest in tech initiatives in order to stay competitive in the retail market.After further establishing themselves in the retail market, these upstart online brokers then also diversify and expand into the more lucrative wealth/asset management or even wholesale businesses.  By gauging at which phase the broker is in this cycle, investors can have a good understanding of its future outlook.In our opinion, Korean brokers currently offer the best value, while the Chinese pure-play online brokers offer the highest growth potential. As such, our pecking order, in terms of investment attractiveness, is <a href="https://www.smartkarma.com/entities/kiwoom-securities-co-ltd" target="_blank" data-smartkarma-citation="entities:20418:1" rel="noopener">Kiwoom Securities (039490 KS)</a>, <a href="https://www.smartkarma.com/entities/east-money-information-co-a" target="_blank" data-smartkarma-citation="entities:8075:1" rel="noopener">East Money Information Co A (300059 CH)</a>, <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>, <a href="https://www.smartkarma.com/entities/monex-group-inc" target="_blank" data-smartkarma-citation="entities:14211:1" rel="noopener">Monex Group Inc (8698 JP)</a> / <a href="https://www.smartkarma.com/entities/huatai-securities-co-ltd-h" target="_blank" data-smartkarma-citation="entities:449:1" rel="noopener">Huatai Securities Co Ltd (H) (6886 HK)</a>.  <h2>What is Original?</h2>In this Original, we look into the competitive landscape of the brokerage sectors in China, Japan, and Korea. 55 listed brokers from these three countries are included in this Original as the company universe for regression analysis. Among them, a total of 8 brokers are chosen, with their company profiles separately presented, to further showcase and contrast the impact of competition and technological disruption. Based on this, a pecking order is then developed, both on a country and a company basis.

This Original aims to identify the key investment opportunities among the listed brokers in the three major East Asian countries - China, Japan, and Korea. By looking at the development of the brokerage sectors in these three countries, we observe a general trend where upstart online brokers first compete against the more established brokers based on their cost and technological advantages. This then pushes the more established brokers to either focus on more lucrative wholesale businesses or adopt and invest in tech initiatives in order to stay competitive in the retail market.After further establishing themselves in the retail market, these upstart online brokers then also diversify and expand into the more lucrative wealth/asset management or even wholesale businesses.  By gauging at which phase the broker is in this cycle, investors can have a good understanding of its future outlook.In our opinion, Korean brokers currently offer the best value, while the Chinese pure-play online brokers offer the highest growth potential. As such, our pecking order, in terms of investment attractiveness, is Kiwoom Securities (039490 KS), East Money Information Co A (300059 CH), Futu Holdings Ltd (FUTU US), Monex Group Inc (8698 JP) / Huatai Securities Co Ltd (H) (6886 HK).  What is Original?In this Original, we look into the competitive landscape of the brokerage sectors in China, Japan, and Korea. 55 listed brokers from these three countries are included in this Original as the company universe for regression analysis. Among them, a total of 8 brokers are chosen, with their company profiles separately presented, to further showcase and contrast the impact of competition and technological disruption. Based on this, a pecking order is then developed, both on a country and a company basis.

Asian Brokers: A Competition Between Value and Growth

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)

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

Robinhood IPO: Downside Risk Could Outweigh Any Potential Future Upside

Although Robinhood had an impressive growth in recent years, the downside risk, in relation to its over-reliance on PFOF and the regulatory...

Alec Tseung

Up Fintech (Tiger Brokers) ADS Placement: Trade Creates Losers

Up Fintech has launched an ADS follow-on to sell 6.5 million ADSs to raise potentially $174 m. Overall, we would be inclined to pass on this follow...

Arun George

Up Fintech (Tiger Brokers) Placement - Needs a Large Correction, Just like Futu

Up Fintech (TIGR US) aims to raise around US$165m via a follow-on offering. This will be the first raising by the company since it was listed in 2019.

Sumeet Singh

Asian Brokers: A Competition Between Value and Growth

The Original looks into the current competitive landscape of the brokerage sectors in China, Japan, and Korea, with a view to developing a list of...

Alec Tseung

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