Morgan Stanley maintains Futu's Overweight rating, target price lowered to US$177.00
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Morgan Stanley maintains Futu's Overweight rating, target price lowered to US$177.00
After excluding the impact of mainland China business, although Futu's profit forecasts were lowered, growth in Hong Kong and overseas markets remains strong, current valuation is undervalued by the market, and the growth logic should return to focus.
- Assuming mainland clients no longer contribute substantial revenue from Q3 2026, net profit forecasts for 2026-2028 are lowered by approximately 22%-28%.
- Due to a smaller base and unaffected overseas growth, profit growth rates are expected to accelerate to over 25% in 2027-2028.
- Penetration rates in Hong Kong and Singapore markets remain low (less than 2%), indicating significant growth potential.
- Overseas market client assets grew nearly 6 times in two years, accounting for 24% of total assets.
- Approved to launch prediction market products in the US and steadily advancing cryptocurrency trading infrastructure construction in Hong Kong.
- Target price lowered by 21% to US$177.00, implying a 2027 forecast P/E of 16.8x, with current stock price presenting a good buying opportunity.
Report interpretation
Overview
Morgan Stanley released a research report on Futu Holdings, stating that with the clarification of regulatory rectification requirements in mainland China, the uncertainty related to the business 'the suspense is over'. Although the institution significantly lowered the company's profit forecasts and target price based on this, it emphasized that Futu's growth momentum in Hong Kong and overseas markets remains strong. After剥离 the mainland business, the company's growth logic will重新 become the market focus, and the current stock price has fully priced in regulatory risks, offering high investment value.
Core views
Clearance of mainland business and profit forecast adjustments: Based on regulatory requirements, the report assumes that Futu will enter a two-year rectification period from Q3 2026, during which mainland clients can only place sell orders and withdraw funds, no longer contributing substantial revenue. Accordingly, the institution lowered client asset forecasts for 2026-2028 by 13%-18% and net profit forecasts by 22.3%-28.5%. Additionally, the institution recorded a one-time fine of RMB 1.85 billion in H1 2026 earnings. Hong Kong and overseas markets接力 growth: The report believes market debate should shift to overseas expansion. Futu's share of household investable assets in Hong Kong and Singapore is less than 2% and 0.5% respectively, indicating huge potential. Meanwhile, overseas client assets grew nearly 6 times in the past two years, accounting for 24% of the total, and recently contributed over 30% of net inflows. As scale expands, the operating profit margin in the Singapore market has caught up to the group level, and the Malaysia market is expected to break even within 6-12 months. Innovative businesses open long-term space: Futu has received US regulatory approval and plans to launch high-margin prediction market products through partners on moomoo US within one to two months. Simultaneously, in the Hong Kong market, the company is migrating cryptocurrency trading to its self-built Panther Trade platform and plans to introduce securities抵押保证金, perpetual contracts, etc., solidifying its position as a crypto生态 infrastructure provider.
Analysis framework
The institution's main analysis thread is '剥离 historical baggage, re-evaluate core growth'. First, by quantifying the historical contribution of mainland clients (13% of total clients, 17% of assets, 20% of revenue in Q1 2026), they are directly excluded from future financial models to eliminate valuation discounts from regulatory uncertainty. Second, by comparing Futu's low penetration rates in Hong Kong and Singapore markets with the vast scale of household investable assets, they demonstrate the certainty of market share growth. Finally, combining the rapid increase in overseas asset比例 and the option value brought by new products like cryptocurrency and prediction markets, they use a DCF model (with base, optimistic, and pessimistic scenario probabilities of 60%, 30%, and 10% respectively) to重新 anchor the valuation center.
Methodology notes
Valuation剥离 of non-growth businesses
When using the DCF model for valuation, if a certain business (such as the mainland business in this case) is restricted from growth or even cleared in the future, its contribution to future free cash flow will rapidly衰减. Therefore, this business has a lower weight in the overall valuation, which is the mathematical logic behind why profit forecasts were lowered by nearly 30%, but the target price was only lowered by 21%.
Scale effects under fixed costs
The report mentions that as the scale of overseas markets expands, profitability will improve (e.g., Singapore market margin catching up to group level). This reflects the operating leverage characteristics of internet brokers:前期 R&D, customer acquisition, and other fixed costs are high, but once client assets (AUM) and trading volume cross the break-even point,新增 revenue is more efficiently converted into net profit.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- Futu Holdings (FUTU.US)Research report analysis subject, benefits from overseas market expansion and new product launches
- Strengths
- Has deep user experience moat in Hong Kong and Singapore markets, fast overseas asset growth, and has obtained qualifications for crypto and prediction market operations.
- Weaknesses
- Faces short-term decline in revenue and profit base due to mainland business clearance.
- Risks
- Significant corrections in US/Hong Kong markets; slower-than-expected monetization in Japan market; intensified competition in Hong Kong and Singapore eroding market share.
Key data
- 2026-2028 net profit forecast下调幅度28.5%, 26.8%, 22.3%Due to exclusion of mainland China client revenue contribution
- Overseas client asset比例24%As of Q1 2026, grew nearly 6 times compared to two years ago
- Target price implied 2027 P/E16.8xCurrent stock price implies only about 10x P/E
- Mainland client historical revenue比例20%As of Q1 2026, accounting for 17% of client assets
Impact & implications
The report believes that the implementation of regulatory rectification in mainland China is 'bad news out' for Futu. Although short-term financial statements will be pressured by one-time fines and a reduced revenue base, this makes the company's business structure clearer, and the policy risk premium in the valuation model is eliminated. In the future, Futu's investment logic will be purely driven by its share expansion in the global wealth management market, product innovation (e.g., crypto, prediction markets), and the release of operating leverage.
Risks
- Significant corrections in US or Hong Kong stock markets.
- Slower-than-expected conversion and monetization of paying clients in the Japan market.
- Intensified competition in Hong Kong and Singapore, potentially eroding company market share.
- Cryptocurrency business is cyclical and may be affected by macro headwinds.
What to watch
- Final conclusions and detailed rectification measures from regulatory authorities.
- Progress in overseas market expansion and growth in the number of paying clients.
- Client acceptance and adoption rates of innovative products like cryptocurrency and prediction markets.
- Catalytic effect of planned opening of Korean market trading permissions to Hong Kong and Singapore clients in mid-June.