On 27 May 2021, Jefferies updated its equity research report on the online broker's industry, still positive on online brokers.
Jefferies equity research
In the report, Jefferies rated FUTU as a top pick and reiterated Buy on FUTU with a target price of US$ 202, implying 50% upside potential compared to its closing price on 25 May.
Jefferies equity research
Jefferies equity research1Q21 results highlights
Futu reported 1Q21 results with revenue and earnings beating market expectations
Total revenue surged 3.5x YoY to HK$2,205m, 48% and 32% ahead of consensus and our estimate, respectively.
Non-GAAP net profit increased 6.3x YoY to HK$1,179m, with non-GAAP net margin reaching 53.5%, beating consensus at 44.3% and our estimate at 45.9%.
Futu's trading volume growth outpaced the market
Futu’s trading volume from US stocks and Hong Kong stocks surged 79% QoQ and 97% QoQ, respectively, outpacing the 27% and 59% sequential trading volume growth at NYSE and HKEX, respectively.
AUM of Futu Elephant Wealth reached HK $13.1bn
Key takeaway
Leading player in the offshore market. Futu is our top pick given its significant advantages in user scale and stickiness, procurement of financial licenses and technology, as well as active expansion in overseas markets and additional trading products to meet a broad range of investor demand.
Given the market usually compares Futu with UP Fintech, as both mainly serve the Chinese population and are listed on Nasdaq, in this report we have performed a detailed comparison and reiterate that Futu outperforms UP Fintech with higher user traffic and stickiness, license advantages and a leading proprietary system, whereas UP Fintech relies largely on IB, higher attention to R&D and ESOP clients with larger market cap.
We expect Futu’s non-GAAP earnings to grow at a CAGR of 76% over 2020-2023E and consider its current valuation attractive at 27.8x 2022E P/E compared to its excellent operating performance.
Valuation and risks
We reiterate our Buy rating and PT of US$202, based on a 25% premium to the sector average forward P/E of FinTech companies in China as we expect Futu to further gain market share backed by its industry-leading proprietary system riding on the secular trend in China’s offshore investment.
Key risks include: (1) macroheadwinds impacting securities market trading volume in the US and/or HK; (2) loss of market share due to competition; and (3) lower-than-expected commission fee rate and interest rate.
Editor: Debby
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