FUTU Holdings (FUTU. O) has entered Hong Kong Virtual Bank.
On June 7th, Futu announced that it had completed an investment of HKD 440 million in the parent company of Hong Kong licensed virtual bank Tianxing Bank. After the investment was completed, Futu became the second largest beneficial owner indirectly holding 44.11% of the shares in Tianxing Bank.
Tianxing Bank has become a licensed bank of the Hong Kong Monetary Authority since May 9, 2019. The former major shareholder was Xiaomi Group. After this change, Xiaomi Group holds 50.30% of the shares and Futu holds 44.11%. The bank officially opened on June 11, 2020.
Tianxing Bank pointed out that the main purpose of Futu's capital injection this time is to support the development of Tianxing Bank's business, promote business diversification, promote the development of the industry ecosystem, help Hong Kong's financial technology continue to innovate and popularize, and deepen inclusive finance.
According to public data, Futu is an Internet securities firm listed in the US stock market, mainly providing corresponding services through the digital platforms Futubull and moomoo. Data shows that in the first quarter, Futu's total revenue increased by 3.7% year-on-year to HKD 2.5925 billion (USD 331.3 million), while its net revenue decreased by 13.1% year-on-year to HKD 1.0351 billion (USD 132.3 million).
Futu experienced a negative increase in net income, even due to its cost growth. According to the financial report, the total cost of Futu in the first quarter was HKD 470.2 million (USD 60.1 million), an increase of 61.7% from HKD 290.8 million in the first quarter of 2023. Interest expenses amounted to HKD 312.8 million (USD 40 million), an increase of 139.1% compared to the first quarter of 2023. The main reason for the increase is the increase in expenses related to the company's securities lending business.
Although the year-on-year net income in the first quarter report has narrowed, many foreign investment banks are bullish on Futu, including Bank of America, Deutsche Bank, JPMorgan Chase, UBS, etc., which have all raised the evaluation price of Futu, mainly between $80-95. As of the close on June 7th, Futu's stock price was $74.9 per share.
Interface News reporters noticed that due to the current inability of Futu to expand its business in mainland China and only serve existing customers, Futu's current focus is mainly on the local and overseas regions of Hong Kong. Its investment in virtual banks may also be driven by such strategic considerations, and Futu itself has strong technical genes.
According to the data, Tianxing Bank is one of the first eight virtual banks in Hong Kong. The Hong Kong Monetary Authority has previously issued three batches of eight virtual banking licenses, namely LIVI Bank, Zhongan Bank, MOX Bank, Hui Li Bank, Ant Bank (Hong Kong), Ping An One Account Bank, Tianxing Bank, and Furong Bank.
According to the 2023 annual report, compared to 2022, Tianxing Bank's total revenue decreased from HKD 64.884 million to HKD 44.843 million. At the same time, the net profit loss also showed an expanding trend, increasing from approximately HKD -200 million to HKD -208 million.
In terms of accounting indicators and operating expenses, as of the end of last year, the total amount of information technology related expenses of the bank was HKD 72.667 million (2022: HKD 61.142 million). Among them, HKD 26.385 million (2022: HKD 30.043 million) was capitalized as intangible assets for the purchase of software and software development, and HKD 46.282 million (2022: HKD 31.099 million) was included in operating expenses for software licenses and other information services.
From the overall situation, although virtual banks in Hong Kong still suffered losses of billions of Hong Kong dollars in 2023, their losses have narrowed to some extent. A person related to virtual banking previously told Interface News that virtual banking requires a large amount of investment in the early stage, especially in the construction of information technology systems, which requires a large number of technological talents and incurs high costs. It is normal for virtual banks to incur losses in the past few years.