On October 2, JPMorgan released a research report maintaining an "overweight" rating on Futu Holdings and significantly raising the target price from $88 to $160. JPMorgan pointed out the following highlights:
Key beneficiary of the Hong Kong market rally: Hong Kong's market reached a record intraday turnover volume of HK$500 billion on Monday, while retail investment sentiment markedly improved. The company is projected to see robust AUM growth in the second half of 2024, propelled by strong client asset inflows and significant mark-to-market gains, driven by the improving investment climate.
Valuation and blue-sky scenario: After incorporating recent positive developments, JP Morgan's 2025 earnings forecast for Futu is 36% above the consensus. Currently, Futu trades at ~15x P/E based on JP Morgan's 2025 estimates, which is below the consensus 25E P/E of 20.8X. JP Morgan's projections assume a trading velocity of 12.1 and client assets of HK$820 billion for 2025. In a blue-sky scenario where trading velocity returns to its 2021 level of 14.5X and margin financing exceeds JP Morgan's baseline estimate by 20%, Futu's 2025 earnings could go up by another 23%.
A high-quality leveraged play on KWEB: The company is viewed as a leveraged play on the KWEB (China Internet Index), with a notable correlation between Futu's share price and the KWEB. JP Morgan analysts maintain a bullish stance on China internet stocks, such as Alibaba, suggesting potential gains for Futu's share price. Additionally, Futu continues to exhibit strong fundamentals, including growth in client/AUM, as well as product launches.
Downside risks include: 1) weakness in China tech stocks, leading to lackluster trading volume growth; 2) regulatory risk; 3) lower-than-expected growth in the number of paying clients.
Upside risks include: 1) higher-than-expected growth in paying client numbers; 2) stronger-than-expected trading volume growth; 3) better-than-expected operating efficiency improvement; 4) Futu launched crypto business in Aug-24, which could bring upside to clients and AUM growth.
