Regulatory rectification pressures earnings and valuations; Goldman downgrades FUTU to Neutral and maintains TIGR at Sell

Overview

This report assesses the impact of the CSRC's comprehensive rectification plan for illegal cross-border securities, futures, and fund business announced on May 22, 2026 on online brokers FUTU and TIGR. Goldman believes that, compared with the 2022 regulatory cycle, this round of regulation further requires a two-year rectification of existing non-compliant mainland business and restricts related accounts from buying and transferring in funds, with impacts reflected simultaneously in fines, revenue loss, client growth, AUM/client, and valuation multiples.

Core views

The core view is that regulatory costs and business model adjustments will significantly drag on 2026 earnings and require the market to reassess online broker valuations. Although FUTU still has relatively strong product competitiveness and growth foundations in the Hong Kong and Singapore markets, rectification of mainland accounts and a lower valuation multiple lead to a downgrade from Buy to Neutral; TIGR faces greater pressure on earnings and client growth, so Sell is maintained.

Analysis framework

Goldman reconstructs earnings forecasts based on regulatory provisions, company-disclosed fines and account metrics, revenue loss from non-compliant mainland accounts, client base gaps, international market customer acquisition costs, changes in AUM/client, and historical valuation multiples during prior regulatory cycles, and uses Bear/Base/Bull scenarios to present valuation ranges under different regulatory execution and market environments.

Methodology notes

• Valuation methods12-month forward P/E

  Set target prices based on 2027E 12-month forward P/E

  The report lowers target P/E for FUTU and TIGR from 19x/10x to 10x/9x, respectively, with reference to the lower valuation range during the 2023-2024 regulatory tightening cycle.

• Scenario analysisBear/Base/Bull Case

  Construct three scenarios around CAC, AUM/client, earnings, and valuation multiples

  The Base Case reflects current regulatory rectification and earnings downgrades; the Bear Case assumes stricter regulation, higher CAC, and weaker AUM/client; the Bull Case assumes improved capital markets and easing regulatory risk.

• Relative factor comparisonGS Factor Profile

  Compare stock attributes using growth, financial returns, valuation multiples, and composite factors

  GS Factor Profile is used to compare covered stocks horizontally against the market and industry peers, but the report's main conclusions still come from regulatory impact, earnings forecasts, and P/E re-rating.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• FUTU

  Covered company; an online broker affected by regulatory rectification.

  Strengths

  Relatively strong product competitiveness, continuing market share gains in Hong Kong and Singapore, and international expansion plans.

  Weaknesses

  Non-compliant mainland accounts account for about 13% of paying clients, the fine amount is relatively large, and AUM/client as well as profit forecasts have been cut.

  Comparison

  Compared with TIGR, FUTU has a stronger earnings base and market share, so it is rated Neutral rather than Sell.

  Risks

  Further regulatory tightening, greater-than-expected AUM outflow, lower-than-expected new client and AUM growth in non-mainland markets, equity market declines, and falling interest rates.

• TIGR

  Covered company; an online broker more sensitive to regulatory rectification.

  Strengths

  Still advancing into new markets such as Australia and New Zealand, with upside scenarios for better-than-expected client growth.

  Weaknesses

  Mainland-related client AUM accounts for about 10%, earnings forecasts are cut more sharply, and rising CAC has a more pronounced impact on margins.

  Comparison

  Compared with FUTU, TIGR has a smaller earnings scale, and Goldman has cut its average 2026-2027 profit by a larger magnitude, so Sell is maintained.

  Risks

  Higher-than-expected costs of expanding into new markets, declining AUM/client, stricter regulatory execution, and insufficient client growth and market trading activity.

Key data

• Regulatory eventCSRC issued the comprehensive rectification plan on May 22, 2026It requires a concentrated two-year rectification of existing non-compliant mainland business, during which affected investors are only allowed to sell and withdraw funds.
• Fine amountFUTU: Rmb 1.85bn; TIGR: Rmb 412mnBoth companies have disclosed the corresponding penalty amounts, which the report views as the main component of short-term earnings impact.
• Cumulative 2026E earnings impactFUTU: -US$393mn; TIGR: -US$66mnThe impact is expected to be mainly concentrated in 2H26.
• 2026 net profit forecast cutFUTU: -25%; TIGR: -60%After the cuts, Goldman's forecasts are about 27% and 75% below BBG consensus, respectively.
• Share of non-compliant mainland accountsFUTU: 13% of paying clients; TIGR: 10% of client AUMFUTU disclosed this on an account-count basis, while TIGR disclosed it on an AUM basis.
• Client base adjustmentFUTU: -467k; TIGR: -128kReflects the impact of mainland non-compliant accounts requiring rectification on the client base.
• CAC assumption adjustmentAverage CAC for 2026-2027: FUTU +8%; TIGR +8%International expansion, compliance, localization, and marketing investment are expected to raise customer acquisition costs.
• AUM/client adjustmentFUTU: -6%; TIGR: -3%Mainland clients historically had higher AUM, and the average AUM of new clients may decline after rectification.
• Target valuation multipleFUTU: 10x P/E; TIGR: 9x P/EThis is significantly lower than the previous 19x/10x and falls within the lower end of the 2023-2024 regulatory cycle range.
• Scenario valuationFUTU: US$77/102/171; TIGR: US$3/4/6These correspond to the Bear/Base/Bull scenarios, respectively.
• Share price reaction on announcement dayFUTU: -28%; TIGR: -25%Reflects that the market has already quickly priced in part of the regulatory shock.

Impact & implications

The investment implication of the report is that the short-term valuation anchor for online brokers is shifting from a high-growth platform narrative to a reassessment centered on regulatory execution, earnings visibility, and client quality. Even if capital market conditions are more favorable than in 2023-2024, rectification of non-compliant mainland accounts will weaken revenue contribution and force companies to replenish clients in Hong Kong, Singapore, and other international markets at higher cost, thereby pressuring both margins and valuation flexibility.

Risks

• Regulatory enforcement intensity or rectification requirements may tighten further, causing account rectification, server shutdowns, or business restrictions beyond current assumptions.
• Actual AUM in non-compliant mainland accounts may be higher than estimated, resulting in greater revenue and earnings loss.
• Customer acquisition costs may continue to rise, and international market expansion may require greater marketing, compliance, and localization investment.
• Downturns in the Hong Kong and U.S. capital markets may depress client AUM, trading activity, and commission income.
• Fed rate cuts larger than expected may weaken interest income.
• The companies may fail to achieve guided new client growth in 2026, or the average AUM of new clients may be significantly below historical levels.

What to watch

• The timing of fine payments and their concentrated impact on specific quarterly results.
• The progress of rectifying non-compliant mainland accounts and details of regulatory enforcement.
• Whether FUTU and TIGR will lower their 2026 new client growth guidance.
• The pace of expansion in non-China markets, level of disclosure, and actual changes in CAC.
• Whether AUM/client for new clients declines significantly and drags on total AUM growth.
• Whether the market continues to revise earnings consensus downward to reflect regulatory costs.