Forensic Analyst

Jason Yap, CFA

Forensic Accounting

<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> recorded 2Q21 revenue and net income of HKD1.6 billion and HKD0.5 billion, a yoy growth of 129% and 126% respectively. Paying client growth continued its solid momentum, tripling from Q2 2020's levels (303k) to to cross the million mark.
The sequential qoq metrics paint a less rosy picture given the moderation of the US ADR and HK market in Q2 2021, compared to the market exuberance seen during the mid February 2021 peak. This has had a direct impact on Futu's brokerage business and related activities such as margin financing, IPO subscriptions, and securities borrowing and lending.
Investors have taken the poor sequential metrics in their stride, with Futu's share price posting mid teen gains since results release (on 31 August 2021). The prevailing narrative is that negatives are fully priced in, regulatory overhang has cleared somewhat, and there is optimism surrounding Futu's international expansion plans which continue apace. 
China tech stocks have also performed well in recent weeks, with pockets of investors identifying a bottom fishing opportunities.  This in turn benefits Futu in the coming quarters as trading velocity and client additions probably increased sequentially in July and August 2021. 
In <a href="https://www.smartkarma.com/insights/futu-holdings-an-inflection-point-imminent" target="_blank" data-smartkarma-citation="insights:55330" rel="noopener">Futu Holdings - An Inflection Point Imminent?</a>, we discussed the possibility of a negative re-rating of the share price and laid out an analytical framework to better evaluate this. How has this changed in light of the Q2 2021 results and how investors have actually reacted since? 
We re-examine these factors in this article.

Futu Holdings Ltd (FUTU US) recorded 2Q21 revenue and net income of HKD1.6 billion and HKD0.5 billion, a yoy growth of 129% and 126% respectively. Paying client growth continued its solid momentum, tripling from Q2 2020's levels (303k) to to cross the million mark.
The sequential qoq metrics paint a less rosy picture given the moderation of the US ADR and HK market in Q2 2021, compared to the market exuberance seen during the mid February 2021 peak. This has had a direct impact on Futu's brokerage business and related activities such as margin financing, IPO subscriptions, and securities borrowing and lending.
Investors have taken the poor sequential metrics in their stride, with Futu's share price posting mid teen gains since results release (on 31 August 2021). The prevailing narrative is that negatives are fully priced in, regulatory overhang has cleared somewhat, and there is optimism surrounding Futu's international expansion plans which continue apace. 
China tech stocks have also performed well in recent weeks, with pockets of investors identifying a bottom fishing opportunities.  This in turn benefits Futu in the coming quarters as trading velocity and client additions probably increased sequentially in July and August 2021. 
In Futu Holdings - An Inflection Point Imminent?, we discussed the possibility of a negative re-rating of the share price and laid out an analytical framework to better evaluate this. How has this changed in light of the Q2 2021 results and how investors have actually reacted since? 
We re-examine these factors in this article. 

Futu - Predictable Sequential Weakness in Q2 2021 but Some Bright Spots