Prepared remarks
Hello, ladies and gentlemen. Welcome to Futu Holdings First Quarter 2026 Earnings Conference Call. Today's conference call is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the conference over to your host for today's conference call, Alan Cui, Investor Relations Manager at Futu. Please go ahead, sir.
Thanks, operator. Thank you for joining us today to discuss our first quarter 2026 earnings results. Joining on the call today are Mr. Leaf Li, Chairman and Chief Executive Officer; Arthur Chen, Chief Financial Officer; and Robin Xu, Senior Vice President. As a reminder, today's call may include forward-looking statements, which represent the company's belief regarding future events, which, by their nature, are not certain and are outside of the company's control. Forward-looking statements involve inherent risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from those contained in any forward-looking statements. For more information about potential risks and uncertainties, please refer to the company's filings with the SEC, including its annual report. With that, I will now turn the call over to Leaf. Leaf will make his comments in Chinese, and I will translate.
Thank you all for joining our earnings call today. In the first quarter, we added 225,000 net new funded accounts, bringing our total funded accounts to 3.59 million, up 34% year-over-year and 7% quarter-over-quarter. Although a subdued Hong Kong equity market weighed on client acquisition, Hong Kong still contributed the second largest new account addition among all regions. We remain confident about sustained client growth in Hong Kong. Looking ahead, we will focus more on the growth of client assets and lifetime value, leveraging our strength in product innovation, brand trust and a one-stop platform to further unlock the commercial potential of the Hong Kong market. Singapore delivered double-digit sequential growth in net new funded accounts. Over the past three years, average client assets in Singapore grew at a CAGR of more than 50%. Given the wealth profile of local residents, we continue to see significant room for further asset growth in Singapore.
Malaysia led all markets in client additions for another quarter, thanks to our effective market initiatives around U.S. equities as well as Moomoo's strong IPO product capability, which allowed us to capitalize on the active Malaysian IPO window for accelerated client growth. Meanwhile, profitability in Malaysia continued to improve, and we expect the market to achieve breakeven within the next six to twelve months. In Japan, our superior U.S. equity trading capability continued to drive client acquisition. In the first quarter, U.S. stock trading volume in Japan recorded double-digit sequential growth, while U.S. options contract volume doubled. This year, we will continue to enhance our Japanese equity trading experience to better meet domestic investment needs and further unlock client acquisition potential. In the U.S., we officially received NFA approval to operate a prediction market brokerage business, and we'll soon begin offering event contracts, including sports-related products to local investors, further strengthening Moomoo's value proposition to active traders.
Client engagement strengthened on the back of precious metals market volatility and geopolitical tensions, leading to the second-highest quarterly net asset inflow on record. However, mark-to-market losses in client equity holdings exerted a substantial negative impact. Total client assets were flat quarter-over-quarter, yet up 47% year-over-year. Client assets registered double-digit sequential growth in Japan, Australia and Canada, as the average client asset across these three regions also reached all-time highs and is growing, improving client quality. Rising risk appetite drove margin financing and securities lending balances up 8% sequentially to HKD 72.9 billion at quarter end. Total trading volume reached a record HKD 4.15 trillion, up 29% year-over-year and 4% quarter-over-quarter. U.S. stock trading volume remained broadly stable at HKD 3 trillion. AI continues to be the dominant investment theme, with client interest gradually shifting down the value chain from semiconductor names towards AI infrastructure beneficiaries.
Hong Kong stock trading volume rose 22% sequentially to HKD 1 trillion as heightened market volatility drove stronger bottom-fishing activity. Active trading in China technology and newly listed AI-related companies more than compensated for softer momentum in the consumer sector. In March, PantherTrade officially obtained second phase approval for the Hong Kong SFC VATP license and commenced full operations. Since launch, a portion of Futu Securities' crypto trading volume and AUM has migrated to PantherTrade. Looking ahead, we plan to introduce security-backed market financing for virtual assets in Hong Kong to further enhance capital efficiency across asset classes. At the same time, we will continue to expand the capability of our crypto exchange, including OTC trading, broader token support and staking services. We are also actively exploring new institutional service use cases with the goal of making PantherTrade a key infrastructure within the Hong Kong Web3 ecosystem.
Period-end wealth client assets were HKD 178.4 billion, up 28% year-over-year and broadly stable quarter-over-quarter. In the first quarter, client asset allocation partly rotated from money market funds into equity funds amidst improving risk appetite. In response to evolving client demand, we further expanded our fund selection. In Hong Kong, we became one of the first brokers to offer space economy-themed mutual funds. In Singapore, we rolled out local equity funds under the MAS Equity Market Development Programme. We also launched gold and oil-linked structured notes and onboarded new issuers. Total retail subscribers for structured products doubled sequentially. As of quarter end, we served 625 IPO distribution and IR clients, up 26% year-over-year. In the first quarter, 12 IPOs each saw over HKD 100 billion in subscription demand on our platform, while six issuers appointed us as overall coordinators for their Hong Kong listings, underscoring our strong distribution and underwriting capability.
During the quarter, we also acted as joint book runners for several prominent Hong Kong IPOs, including those of Zhipu AI, MiniMax and Biren Technology. Next, I'd like to invite our CFO, Arthur, to discuss our financial performance.
Thank you, Leaf and Alan. Please allow me to walk you through our financial performance in the first quarter. All the numbers are in Hong Kong dollars unless otherwise noted. Total revenue was HKD 5.9 billion, up 25% from HKD 4.7 billion in the first quarter of 2025. Brokerage commission and handling charge income was HKD 2.6 billion, up 14% year-over-year and down 5% quarter-over-quarter. Total trading volume grew on both year-over-year and quarter-over-quarter basis, while blended commission rate declined due to stronger trading activities in higher priced U.S. stocks and options during the quarter. Interest income was HKD 2.7 billion, up 28% year-over-year and down 13% quarter-over-quarter. The year-over-year increase was mainly driven by higher interest income from margin financing and bank deposits, while the quarter-over-quarter decrease was primarily attributable to lower interest income from securities borrowing and lending business as well as bank deposits.
Other income was HKD 564 million, up 80% year-over-year and down 10% quarter-over-quarter. The year-over-year increase was primarily driven by higher currency exchange service income and IPO subscription service charge income. The quarter-over-quarter decrease was mainly due to lower enterprise public relations service charge income and IPO subscription service charge income. Our total cost was HKD 749 million, flat compared to the first quarter of 2025. Brokerage commission and handling charge expenses were HKD 164 million, up 15% year-over-year and 16% quarter-over-quarter. The year-over-year increase was broadly in line with the growth of our brokerage commission and handling charge income. The quarter-over-quarter increase was mainly due to transaction fees rebate in the prior quarters. Interest expenses were HKD 415 million, down 12% year-over-year and 5% quarter-over-quarter. Both the year-over-year and the quarter-over-quarter decreases were mainly driven by lower interest expenses associated with our securities borrowing and lending business.
Processing and service costs were HKD 170 million, up 25% year-over-year and 13% quarter-over-quarter. Both year-over-year and quarter-over-quarter increases were primarily driven by higher product service fees. As a result, total gross profit was HKD 5.1 billion, an increase of 29% from HKD 3.9 billion in the first quarter of 2025. Gross margin was 87.2% as compared to 84% in the first quarter of 2025. Operating expenses were HKD 1.6 billion, up 25% year-over-year and flat quarter-over-quarter. R&D expenses were HKD 479 million, up 24% year-over-year and down 5% quarter-over-quarter. The year-over-year increase was primarily driven by higher R&D headcount to support strategic initiatives in the new markets. Selling and marketing expenses were HKD 557 million, up 21% year-over-year and 10% quarter-over-quarter. Both the year-over-year and the quarter-over-quarter increases were mainly driven by higher customer acquisition costs.
G&A expenses were HKD 541 million, up 30% year-over-year and flat quarter-over-quarter. The year-over-year increase was primarily due to increase in G&A personnel. As a result, income from operations was HKD 3.5 billion, up 31% year-over-year and down 15% quarter-over-quarter. Operating margin increased to 60.3% from 57.2% in the first quarter of 2025, mostly due to strong top-line growth and operating leverage. On May 22, 2026, the company received an Administrative Penalty Pre-Notification Letter from the China Securities Regulatory Commission Shenzhen Bureau in an aggregate amount of approximately RMB 1.85 billion, which has been fully reflected in our first quarter financial statements as an adjusted subsequent event under U.S. GAAP. This amount does not impact our business fundamentals or financial stability. We remain focused on long-term growth across international markets. As a result, our net income decreased by 61% year-over-year and 75% quarter-over-quarter to HKD 831 million with net income margin at 14.2%.
Prior to giving effect to this adjustment, our net income would have increased by 36% year-over-year and decreased 13% quarter-over-quarter to HKD 2.9 billion, with net income margin at 49.9%. As of the close of the U.S. market on May 27, 2026, we have cumulatively repurchased approximately USD 418 million worth of ADSs, reflecting management's strong confidence in the company's future growth prospects and the commitment to deliver shareholder value. Subject to market conditions, we may continue to execute repurchases from time to time under the USD 800 million share repurchase program announced in November 2025. That concludes our prepared remarks. We'd now like to open the call to questions. Operator, please go ahead.
Questions and answers
And our first question is going to come from the line of You Fan with CICC.
This is You Fan from CICC. I have two questions here. The first one is about the regulation. Would you please share more on your understanding of the latest regulatory requirements published by CSRC and SFC last Friday, and what's the impact on Futu? The second question is about our regional breakdown. Would you please share more data on the regional breakdown of the net new added paying clients, the existing paying clients in Q1 and also the AUM breakdown by region as of Q1? These are my two questions.
CSRC and SFC released updated industry-wide regulatory guidance last Friday regarding cross-border securities, futures and fund-raising activities involving Mainland Chinese investors. We paid close attention to the update immediately and responded proactively. This regulatory adjustment applies uniformly across the industry, and the company will continue to actively embrace regulatory requirements and steadily advance subsequent compliance measures in strict accordance with the guidance. As a licensed financial institution, Futu has always placed compliance operations as its top priority. Previously, we had already fully ceased account opening for Mainland Chinese identity holders. While continuously strengthening our account review and anti-fraud mechanism, we maintain zero tolerance towards fraudulent activity. Over the past two years, we have cumulatively rejected tens of thousands of noncompliant account opening applications.
As of the end of the first quarter, Mainland China funded accounts represent approximately 13% of our funded accounts, while related client assets accounted for around 17% of total client assets, contributing approximately 20% of total revenue. In addition, the two-year reapplication period for Mainland Chinese clients does not require account closure, but rather imposes restrictions on deposits and security buying activities where clients are physically located within Mainland China. Over the past several years, Futu's business has also become increasingly diversified. In Hong Kong, despite the intense competitive market environment, we have maintained a market share of over 50% among local residents. Meanwhile, the company's international expansion has entered a phase of full acceleration. In the first quarter, Moomoo, our overseas independent brand, delivered strong year-over-year revenue growth across all overseas markets, with revenue in five countries more than doubling.
Overseas accounts surpassed two million, while client quality continued to improve steadily with average AUM per client reaching approximately USD 18,000, significantly higher than that of other local online investment platforms. Looking ahead, the company expects to expand into more international markets. Regulatory license applications are progressing smoothly, and we are advancing related preparations in parallel. We believe our global expansion strategy will further enhance the resilience of the group's business structure and broaden its long-term growth potential. Overall, the company's operations in both Hong Kong and overseas markets remain fully normal and various new business initiatives are progressing in an orderly manner. We do not expect this regulatory update to have any material impact on our full-year guidance of 800,000 net new funded accounts. Futu will continue to adhere to its compliance-first and international expansion strategies while continuously enhancing its products and service capabilities to drive long-term sustainable growth.
Malaysia and Hong Kong together contributed more than half of the net new funded accounts in the first quarter, while among the remaining markets, Singapore contributed the largest proportion. At the end of the first quarter, over 55% of the group's funded accounts were under our overseas brand, Moomoo, primarily from Singapore, the U.S. and Malaysia. At the end of the first quarter, Futu Securities Hong Kong entity contributed the largest share of the group's total assets. Within Moomoo, total client assets were primarily contributed by Singapore and the U.S.
Our next question comes from the line of Leon Qi with CLSA.
This is Leon Qi from CLSA. I will recap my questions in English. I have two questions. My first question is on the regulatory aspect. With the recent regulatory updates as well as the administrative penalty disclosed, we would like to understand your latest cooperations with banks and other funding partners. For example, in our credit lines with the banks, funding costs or credit ratings, are they generally remaining stable? Some color around that will be very helpful to us. My second question is on the growth potential in our international markets, especially the mature markets. We do understand that Futu already has a very strong presence in Hong Kong and Singapore. How do you think about the runway ahead for continued growth in these markets?
For the first question regarding the credit facility and the credit rating, this week, my team and I had very constructive discussions with our credit rating agency and our commercial bank partners around the globe. I'm very happy to share that our credit facilities remain intact. In the next couple of weeks, we are very likely to get our annual credit rating issued by S&P, and I'm confident there will be a good result going forward. While Futu has achieved very extensive user coverage in Hong Kong and Singapore, there remain enormous potentials for further client acquisition and growth in client assets. Our recent report issued by BCG states that Hong Kong has overtaken Switzerland to become the world's largest cross-border wealth management hub, with Singapore ranking third. According to public data from the SFC, Hong Kong's wealth management assets exceeded HKD 35 trillion by the end of 2024.
Data from the MAS also shows Singapore's wealth management assets topped HKD 34 trillion over the same period. By contrast, Futu Group's total assets stand now just over HKD 1 trillion. As two major international financial hubs, Hong Kong and Singapore boast trillions of Hong Kong dollars in resident wealth. With our brand influence continuing to grow, our in-depth wealth services in these two markets are still in the early stage. The market upside remains substantial with vast room for development. After more than a decade of refinement, we have built a comprehensive product portfolio, outstanding customer service capabilities and an expanding global financial services ecosystem. We are fully confident in the future, and we will keep optimizing our offering and further deepen our presence in these two mature markets. Thank you.
Our next question comes from the line of Chiyao Huang with Morgan Stanley.
Two questions from me. One is on the U.S. prediction market. What is the main opportunity that the company is focusing on and what's the plan here? Is there any synergy with our current business in the U.S.? How does management see the margin and the TAM of this business in the U.S.? The second question is on the crypto business in Hong Kong, especially regarding the VATP. Is there any update on the product and strategies? What kind of synergy could we have between Hong Kong crypto business and that in Singapore and the U.S.? Also, how do management think about at what level of client asset allocation to crypto we would see meaningful monetization opportunities and roughly how long that might take? Are we spending more time building our own infrastructure and product offerings or more on client adoption?
Regarding the prediction markets, Moomoo Financial and Futu Clearing officially obtained an FCM license in May, allowing us to conduct prediction market brokerage and clearing business. Alongside the licensing process, we have completed the development of our product and system capabilities, and expect to launch prediction market trading service to our U.S. retail clients in the near future. Compared with traditional derivatives such as futures, prediction market products are generally more intuitive, easy for clients to understand and offer more flexible participation mechanisms. This not only helps improve retail participation in financial markets and promote broader financial inclusion, but also has the potential to become an important driver for client acquisition, trading activation and client conversion on the platforms. Over the past couple of months, we have seen several major U.S. players make significant progress in new client acquisition through these new product offerings.
For prediction market products linked to financial events, market makers' hedging activities around underlying assets could further enhance liquidity in both spot and derivative markets while also strengthening overall price discovery efficiency across securities markets. Our expansion into the prediction market business in the U.S. is not only intended to capture the rapid growth opportunity in the local market, but more importantly to accumulate core know-how in areas such as product design, operational management and risk control. We believe this experience will help lay the foundation for expanding prediction market business into additional markets in the future. At present, we are also actively engaging and discussing with regulators in other jurisdictions regarding the scope and feasibility of prediction market products.
So in March, as Leaf mentioned in the opening remarks, PantherTrade successfully passed the second phase approval of the Hong Kong SFC's VATP license and officially commenced full operation. Going forward, we will focus on advancing the business across three dimensions. First, we will strengthen internal synergy and traffic conversion capability. Currently, a portion of Futu Securities' virtual asset trading volume and AUM has already migrated to PantherTrade. Looking ahead, as the group gradually secures compliant virtual asset licenses in additional regions, we will actively explore deeper collaboration opportunities between our regional cryptocurrency brokerage businesses and PantherTrade, within the applicable regulatory frameworks. Second, we will continue to enhance our virtual asset product capability. Subject to regulatory approval, we plan to progressively introduce core functionalities such as OTC trading, additional token listings and staking services.
This will enable us to provide more comprehensive virtual asset solutions for high-net-worth and institutional clients. Holding an exchange license also allows the group to participate more directly in industry infrastructure development and actively explore innovative product opportunities, including perpetual futures. Third, we aim to build long-term ecosystem capability. In the future, we plan to explore secondary market trading for tokenized securities, integration with third-party brokers and a one-stop solution for virtual asset ETF issuers covering issuance, trading, custody and staking services. As traditional finance and virtual asset markets continue to converge, PantherTrade has the potential to evolve into a key infrastructure platform within the Hong Kong Web3 ecosystem. We think Hong Kong and Singapore, especially for the crypto segment, are still in an early stage of development.
For Futu, we will continue investor education and product innovation. As a platform that has both brokerage and crypto exchange capability, we are confident in the future growth potential of the overall crypto business.
Our next question is going to come from the line of Emma Xu with BofA Securities.
The first question is about the interest income. We noted that interest income declined 12.8% sequentially. Could you please provide the breakdown of your interest income by category, drivers of the quarter-over-quarter changes for each item as well as the quarter-to-date trends? The second question is about the operating trends in the second quarter so far. Could you update us on the latest new funded accounts, AUM, including net asset inflows and mark-to-market changes as well as the trading volume?
In the first quarter, approximately 40% of group interest income was from idle cash, another roughly 40% was contributed by margin financing, and the remainder mainly came from the securities borrowing and lending business. The quarter-over-quarter decline in interest income was mainly attributed to lower securities borrowing and idle cash interest income, while margin financing interest income achieved sequential growth. Idle cash interest income declined due to two reasons. First, the Fed rate cuts (notably the May and December moves) were fully reflected in the first quarter. Second, heightened market volatility during the quarter drove more active buying behaviors among clients, leading to a sequential decline in average daily cash balance, which also weighed on idle cash interest income. By contrast, supported by active margin trading activity in both the U.S. and Hong Kong, our margin financing balance increased meaningfully on a quarter-on-quarter basis, therefore contributing more margin financing interest income.
At the same time, securities borrowing interest income declined sequentially, mainly due to market factors as implied volatility in the U.S. equity market was lower in the first quarter. Overall short-selling demand moderated, leading to a meaningful decline in securities lending yield. Based on the current run rate in the second quarter, we expect overall interest income to remain broadly stable quarter-on-quarter.
Based on the current second-quarter run rate, the net new funded accounts are expected to remain stable sequentially. Net asset inflows have maintained the strong growth momentum seen in the first quarter. While last Friday's regulatory developments created some short-term disruption to net inflows, the overall impact remains manageable. Benefiting from positive quarter-to-date mark-to-market performance as well as continued active client trading behavior, both AUM and trading volume have the potential to achieve double-digit sequential growth.
Our next question comes from the line of Charles Zhou with UBS.
This is Charles Zhou from UBS. I have two questions. First, we have seen recent developments such as an acquisition of Bright Smart Securities, intensive marketing by Weibo, the launch of Hong Kong U.S. stock trading by Ant Bank and ZA Bank. How does the company view the intensifying competition in the Hong Kong market? Second, related to the South Korean market: Korean tech stocks have been performing very strongly year-to-date. Does the company have any plans to expand into the Korean equity market? Would appreciate if you can share details such as timeline or target markets.
First, we think Hong Kong remains a market with significant long-term potential. According to the Hong Kong Chief Executive's 2025 policy address, since the launch of various talent admission initiatives, more than 230,000 professionals have relocated to Hong Kong for work and development opportunities. Against the backdrop of rising global macro uncertainties, an increased number of high-net-worth individuals and international capital are also flowing into Hong Kong, driving continued expansion in market wealth and asset pools. For Futu, we remain very confident in our competitiveness. Even with several well-known peers entering the Hong Kong market in recent years, we have continued to see steady expansion in our customer base, client assets and market share. At the core of this achievement is the multi-dimensional competitive moat we have built over time, supported by time barriers to entry.
On the product and service front, we have already established a comprehensive one-stop financial services platform in Hong Kong, while continuously enhancing innovative capabilities such as AI applications. Combined with competitive pricing, this enables us to deliver an industry-leading user experience to our clients. From a branding perspective, we have spent more than a decade deeply cultivating the Hong Kong market and have established strong brand recognition and client trust. An increasing number of clients are willing to place their core assets with Futu's platform over the long term, while the proportion of high-net-worth clients has continued to rise in the past couple of quarters. This type of brand equity cannot be replicated through short-term marketing spending alone. We do not view competition as purely negative because Hong Kong has always been one of the world's most competitive financial markets.
Over the long run, competition drives industry innovation. For leading platforms with strong product capabilities, brand trust and ecosystem advantage, competition may in fact create opportunities to further consolidate market share. More importantly, in Hong Kong as a global financial center, we believe our penetration into the tens of trillions of Hong Kong dollars of personal investable assets is still at a very early stage, while our brand continues to mature. Supported by our long-term accumulated strength, we remain highly confident in our ability to continue to grow both in clients and clients' assets in the Hong Kong market.
In April, Futubull and Moomoo officially supported real-time market data for South Korean stocks. Our team is currently actively preparing for the rollout of South Korean stock trading, which is expected to first launch in Hong Kong and Singapore in June, with more regions to follow progressively thereafter. Currently, many clients primarily gain exposure to South Korean equity indirectly through leveraged ETFs and similar products. As of May 26, Futu Securities clients accounted for approximately 30% and 18% of the holdings in the CSOP 2x leveraged ETF on Samsung Electronics and the CSOP 2x leveraged ETF on SK Hynix, respectively, reflecting strong client demand for South Korean equities, particularly names within the AI supply chain. As a leading one-stop investment and trading platform, Futu remains committed to providing clients with diversified global asset allocation opportunities and best-in-class trading experience. We will continue to monitor the potential of other international stock markets and dynamically evaluate additional market access opportunities based on client demand and commercial value.
And this will conclude today's question-and-answer session. I would now like to hand the conference back over to Alan Cui for closing remarks.
That concludes our call today. On behalf of the Futu management team, I would like to thank you for joining us today. If you have any further questions, please do not hesitate to contact me or any of our Investor Relations representatives. Thank you, and goodbye.
This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.