Futu's 2Q26 results significantly beat expectations, but 3Q slowdown and tighter mainland business restrictions keep J.P. Morgan at Neutral

Overview

The report reviews Futu's significantly better-than-expected 2Q26 results and assesses tighter mainland business regulation, overseas expansion and 3Q operating trends. J.P. Morgan raised its 2026—2028 earnings forecasts and target price but believes the strong 2Q momentum should not be directly extrapolated, and therefore maintains its Neutral rating.

Core views

Futu's 2Q26 revenue and non-GAAP profit increased 36% and 40% YoY, respectively, exceeding J.P. Morgan's forecasts by 21 and 25 percentage points and Bloomberg consensus by 19 and 21 percentage points. The beat was mainly driven by brokerage and interest income: brokerage revenue reached HK$3.36 billion, up 27% QoQ and 30% YoY; total trading volume reached a record high of HK$6.42 trillion, up 55% QoQ and 79% YoY. U.S. equity trading volume rose 67% QoQ to HK$5.02 trillion, while overall U.S. market trading volume increased only 3% QoQ during the same period. Management attributed Futu's strong performance to increased client interest in semiconductor and other AI supply-chain stocks. Interest income increased 18% QoQ, driven by expansion in margin financing and client idle cash balances. The margin financing balance increased 30% QoQ to HK$95.1 billion, while client idle cash increased 18% QoQ. Client growth also remained strong: Futu added 252,000 clients in 2Q, up 12% QoQ, and additions in the first half had already reached approximately 60% of the full-year target of 800,000; client assets increased 14.5% QoQ to HK$1.40 trillion, mainly driven by appreciation in the market value of client holdings. Malaysia and Hong Kong SAR together contributed more than 50% of new funded accounts, followed by Singapore; by the end of 2Q, Moomoo accounted for nearly 60% of total funded accounts. The regulatory impact has so far been smaller than the market previously feared. Since the rules were issued on May 22, cumulative asset outflows have amounted to approximately a mid-single-digit percentage of total client assets, with most of the impact absorbed in 2Q; clients originating from mainland China and Hong Kong SAR each accounted for roughly half of the outflows. Outflows from Hong Kong clients were mainly concentrated in the initial period after the rules were announced, while outflows from mainland clients were concentrated in June and July following Futu's implementation of trading restrictions in June; by August, the pace of client attrition had begun to slow. The 2Q retention rate for Hong Kong clients remained above 98%, while retention rates in overseas markets were stable QoQ. However, the company did not disclose the specific contributions of mainland visitor clients to revenue, assets under management and profit, making it difficult to precisely assess the earnings mix after the tightening of its mainland business. Overseas expansion continues to support medium- to long-term growth. Management indicated that resource allocation would continue to shift toward international operations. Average revenue from new funded accounts improved QoQ in most overseas markets, particularly the United States, Singapore and Hong Kong SAR, while average client assets also increased QoQ across all overseas markets. The Singapore business passed the break-even point several years ago and continues to expand its profit, while Malaysia achieved operating break-even in 2Q; other markets remain in the expansion stage. Futu obtained a U.S. CFTC futures commission merchant license in May and launched prediction market products in early June. Initial demand was strong, and management believes the product can increase engagement with its brokerage business through cross-selling. The company obtained a Thailand Type A securities license in July, but the official launch remains subject to a regulatory readiness inspection and final approval, with no definitive timetable yet. The report believes the key focus has shifted to 3Q. Because mainland client trading restrictions were implemented in June, 3Q will be the first quarter to fully reflect their impact, and a lower contribution from mainland clients will weaken business momentum QoQ. Management said performance in 3Q to date had been “moderately weaker” than in 2Q: new funded account additions slowed, net inflows from Hong Kong SAR and overseas markets normalized, and total trading volume declined slightly QoQ as retail investor sentiment cooled. Blended customer acquisition cost increased QoQ to approximately HK$2,600 in 2Q, remaining within the full-year guidance range, but rose further in July. The QoQ decline in the 2Q implied commission rate was mainly due to a modest decrease in the share of derivatives and a greater concentration of trading in higher-priced U.S. AI and technology stocks; management does not view this as a structural fee-rate change. Meanwhile, the addition of management personnel to support business development drove a 40% QoQ increase in general and administrative expenses in 2Q. Accordingly, J.P. Morgan raised its 2026—2028 trading volume forecasts by 25%, 18% and 17%, respectively, its brokerage revenue forecasts by 8%, 3% and 2%, and its interest income forecasts to reflect growth in margin financing balances; net revenue forecasts were increased by 9%, 6% and 6%, respectively. After incorporating the latest cost trends, three-year operating expense forecasts were raised by 8%, 5% and 5%, respectively. The report summary lists increases of 9.5%, 7.3% and 6.2% in 2026—2028 non-GAAP profit forecasts, while the detailed model update rounds these to 10%, 7% and 6%; normalized non-GAAP EPS forecasts were raised by 9%, 7% and 6%. The target price was raised from US$112 to US$122, based on 13 times 2026 normalized EPS and assuming zero contribution from the mainland business. The 13 times P/E multiple is above the historical trough of 10 times during the regulatory tightening cycle but below the five-year average of 15 times; the report believes the proposed fine and share repurchases have partially restored investor confidence. Over the long term, growth in paying clients, overseas market expansion, wealth management and crypto operations could support client numbers, asset scale and stickiness. However, regulators require offshore online brokers to exit their mainland business within two years, which J.P. Morgan estimates could create approximately 20% downside to revenue and approximately 30% downside to profit. Considering the 2Q earnings upgrades alongside 3Q and regulatory uncertainty, the report believes investors will not directly extrapolate 2Q momentum into future quarters and therefore maintains its Neutral rating.

Analysis framework

The report first compares 2Q26 revenue, profit and key operating metrics with J.P. Morgan forecasts and Bloomberg consensus, then breaks down the earnings beat into drivers including trading volume, brokerage revenue, margin financing balances, idle cash and client assets. It subsequently incorporates information from management's earnings call to assess regulatory and operating impacts through client outflows and retention, overseas market maturity, customer acquisition costs and 3Q-to-date trends. Finally, it incorporates the new data into the 2026—2028 earnings model and derives the target price using normalized EPS and a P/E multiple relative to its historical range.

Methodology notes

• Valuation methodologyPE/PEG valuation

  Normalized EPS-based P/E valuation

  The report calculates its US$122 target price using 13 times 2026 normalized EPS and compares this multiple with the historical trough of 10 times during the regulatory tightening cycle and the five-year average of 15 times, while assuming zero contribution from the mainland business.

• Industry/sector analysis frameworkVolume-price decomposition

  Decomposition of trading volume, commission rate and brokerage revenue

  The report explains brokerage revenue through the combination of changes in trading volume and the implied commission rate, attributing the commission-rate decline to changes in the derivatives mix and the trading mix of higher-priced U.S. stocks rather than structural price reductions.

• Event strategy and behavioral financeEvent-driven analysis

  Tracking the impact of the May 22 regulatory rules

  The report tracks asset outflows, client retention and business trends before and after the rules were announced and trading restrictions were implemented in June, viewing 3Q as the key window for assessing the full-quarter impact.

• (Method outside the vocabulary)

  Operating-metric-driven earnings forecast updates

  The report incorporates trading volume, client assets, margin financing balances, brokerage revenue, interest income and expense trends into its 2026—2028 model, then adjusts its net revenue, non-GAAP profit and EPS forecasts accordingly.

Asset mapping & comparison

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

• Futu Holdings (FUTU.US)

  2Q26 trading volume, brokerage revenue, interest income and client asset growth exceeded expectations, and overseas operations continued to expand, but 3Q momentum and the regulatory impact on the mainland business remain constraints.

  Strengths

  The digital brokerage and wealth management platform benefits from client-growth drivers; U.S. equity trading volume significantly outperformed the market; Singapore remains profitable and Malaysia achieved break-even, while prediction markets and the Thailand license expand the company's overseas product and geographic footprint.

  Weaknesses

  3Q trading volume, new funded accounts and net inflows slowed, customer acquisition costs and management expenses increased, and the contributions of mainland visitor clients to revenue, assets and profit remain undisclosed.

  Comparison

  U.S. equity trading volume increased 67% QoQ in 2Q, significantly above the overall U.S. market's 3% QoQ increase; the target P/E multiple of 13 times lies between the regulatory-cycle historical trough of 10 times and the five-year average of 15 times.

  Risks

  Regulators require offshore online brokers to exit their mainland business within two years, which the report estimates could cause approximately 20% downside to revenue and approximately 30% downside to profit.

Key data

• 2Q26 revenue growthYoY +36%21 percentage points above J.P. Morgan's forecast and 19 percentage points above Bloomberg consensus
• 2Q26 non-GAAP profit growthYoY +40%25 percentage points above J.P. Morgan's forecast and 21 percentage points above Bloomberg consensus
• Brokerage revenueHK$3.36 billionQoQ +27%, YoY +30%
• Total trading volumeHK$6.42 trillionQoQ +55%, YoY +79%, a record high
• U.S. equity trading volumeHK$5.02 trillionQoQ +67%, while overall U.S. market trading volume increased only +3% QoQ during the same period
• New clients added in 2Q252,000QoQ +12%; approximately 60% of the full-year target of 800,000 was achieved in the first half
• Client assetsHK$1.40 trillionQoQ +14.5%, mainly driven by appreciation in the market value of client holdings
• Margin financing balanceHK$95.1 billionQoQ +30%, driving an 18% QoQ increase in interest income
• Cumulative asset outflows following the regulatory rulesA mid-single-digit percentage of total client assetsMainland and Hong Kong clients each accounted for roughly half, with most of the impact absorbed in 2Q
• Hong Kong client retention rateAbove 98%2Q data; the pace of mainland client attrition began to slow in August
• Blended customer acquisition costApproximately HK$2,600Increased QoQ in 2Q but remained within the full-year guidance range, and continued to rise in July
• 2026—2028 non-GAAP profit revisions+9.5%/+7.3%/+6.2%Forecast revisions incorporating the strong 2Q26 operating performance
• Target priceUS$122December 2026 target price, previously US$112, based on 13 times 2026 normalized EPS

Impact & implications

The report believes the 2Q results demonstrate continued support from Futu's trading activity, client asset growth and overseas expansion, while actual asset outflows triggered by regulation were below prior concerns, leading to higher earnings forecasts and target price. However, 3Q will fully reflect mainland trading restrictions for the first time, and operating metrics have already weakened QoQ; given insufficient disclosure of mainland revenue contributions, rising customer acquisition costs and long-term pressure to exit the mainland business, the 2Q performance is not sufficient to change the Neutral view.

Risks

• Weak performance by Chinese technology stocks could lead to sluggish trading volume growth.
• Regulatory risks, including compliance with Chinese data security laws, could weigh on the business and share-price performance.
• A decline in HIBOR could cause interest income to fall below expectations.
• The requirement for offshore online brokers to exit their mainland business within two years could cause approximately 20% downside to revenue and approximately 30% downside to profit.
• Higher-than-expected growth in paying clients could create upside risk to the rating and target price.
• Stronger-than-expected trading volume growth could create upside risk to the rating and target price.
• Better-than-expected improvement in operating efficiency could create upside risk to the rating and target price.

What to watch

• Monitor 3Q operating data, as this is the first quarter to fully reflect the impact of mainland client trading restrictions.
• Monitor whether trading volume, new funded accounts, net inflows and customer acquisition costs continue the sequential weakening trend seen in early 3Q.
• Monitor whether mainland client asset outflows and the pace of client attrition continue to slow after August.
• Monitor whether the company discloses the contributions of mainland visitor clients to revenue, assets under management and profit.
• Monitor client engagement with U.S. prediction market products and their cross-selling effectiveness with the brokerage business.
• Monitor the timing of the Thailand business completing its regulatory readiness inspection, receiving final approval and officially launching.
• Monitor further progress in overseas market client revenue quality, average client assets and profitability.