On July 28, Morgan Stanley issued a research report to maintain Futu Holdings' "Overweight" rating with a target price of US$163.

In the research report，Morgan Stanley expect Futu's 2Q revenue/ NPAT to decline ~24%/~41% qoq. Their bear case analysis indicates $92 as the potential fundamentally supported price floor. In case of a major market correction, multiples could see pressure though, presenting a temporary downside. Cut PT by 32% to US$163. Remain OW.

2Q21 preview

Morgan Stanley expects the qoq drop mainly due to: 

1. moderating trading velocity；

2. higher client acquisition cost；

3. moderating IPO pace. 

Morgan Stanley expects ~195k new paying clients in 2Q.

How to value Futu amid market volatilities and where is the bottom? 

Morgan Stanley sees recent market volatilities mainly impacting Futu on the below areas:

• Moderating ADR and Hong Kong stocks' trading velocity, margin finance demand and client AUM per capita.

• Potentially some slowdown in client acquisition pace in existing markets like Hong Kong amid market volatilities and a slower IPO pace in Hong Kong.

• Potential higher client acquisition cost and step-up of promotions in Hong Kong.

Earnings estimates

Given market correction and 2Q preview, Morgan Stanley cut profit estimates by 26%-35% in 2021-23E. 

Morgan Stanley revise down Futu's profit by 26%,35%,30% through 2021E-23E to HK$3.3bnHK$6.1bn, respectively, mainly due to:

1. Slower growth in US stock trading volume market share due to ADR volatilities.

2. Moderation in "other income" item due to a slower IPO pace in Hong Kong.

3. Some higher client acquisition cost in 2021E given more promotions in Singapore and Hong Kong.