Futu’s Q1 Results In Line; Regulatory Fine Recognition Reduces Uncertainty

Overview

This report is Goldman Sachs’ earnings review of Futu Holdings (FUTU.US) for Q1 2026. The key conclusion is that Futu’s Q1 results were broadly in line with market expectations. Although the company recognized an RMB 1.85 billion CSRC fine, this action occurred earlier than Goldman Sachs’ prior expectation of H2 2026, enhancing transparency and reducing uncertainty around regulatory enforcement. Accordingly, Goldman Sachs raised Futu’s target P/E multiple from 10x to 11x and its target price from USD 102.13 to USD 114.37, while maintaining a Neutral rating — reflecting that current valuation already prices in some positive developments and that the regulatory environment remains stricter than in 2022.

Core views

Earnings and Fine Impact: Futu reported Q1 revenue of HKD 5.9 billion and profit of HKD 2.9 billion (pre-fine), which were 2% below Goldman Sachs’ prior estimates but broadly in line with expectations. The company recorded an RMB 1.85 billion non-interest expense for the CSRC fine in Q1. Goldman Sachs notes that, as the fine includes confiscation of illicit gains, revenue from existing non-compliant mainland China accounts remains recognizable; however, such revenue recognition may have been suspended since the effective date of rectification rules on May 22. Previously, Goldman estimated the total impact of the fine combined with non-compliant account cleanup on 2026 profit at USD 393 million; after deducting the fine, the residual impact is approximately USD 121 million, representing ~10% of Goldman’s prior 2026 net profit forecast. Business Operations and Growth Drivers: Management reaffirmed its full-year target of adding 800,000 new paying customers. Hong Kong and Southeast Asia remain the primary growth markets, with Malaysia expected to reach breakeven within 6–12 months — becoming the third profitable international market after Hong Kong and Singapore. On new products, Futu has received regulatory approval to operate prediction market brokerage and clearing services in the U.S., expected to boost retail asset participation; Korean stock trading will launch in Hong Kong and Singapore in June. As of May 26, Futu clients’ positions in leveraged products linked to Samsung Electronics and SK Hynix accounted for 30% and 18% of related holdings, respectively. Financial Forecast Adjustments: Given the earlier-than-expected fine recognition, Goldman Sachs raised its 2026/2027 revenue and profit forecasts by an average of 6%/2%. Key drivers include a doubling of turnover rate assumptions and a 12% upward revision to paying customer growth forecasts — partially offset by a 5% increase in customer acquisition cost (CAC) and a 3% decline in average AUM per customer. AUM is projected to increase net by HKD 124 billion in Q2 2026, reversing two consecutive quarters of net outflows.

Analysis framework

Goldman Sachs’ analytical framework centers on two core themes: 'regulatory risk de-escalation' and 'fundamental growth resilience.' First, it quantifies the fine amount and its implications for future revenue recognition to assess the one-time profit impact and potential long-term shifts in revenue structure. Second, it dissects key operating metrics — including AUM changes, turnover rate, and CAC — to validate the company’s organic growth capacity amid compliance remediation. Finally, on valuation, despite reduced uncertainty supporting valuation recovery, Goldman assigns a target P/E of 11x — below the 2023–2024 median of 14x — to reflect ongoing regulatory premium requirements given the more stringent regulatory actions relative to 2022.

Methodology notes

• Valuation MethodologyP/E and PEG Valuation

  Relative valuation based on forward P/E

  The institution calculates the target price by multiplying the 2027 estimated EPS by the target P/E multiple (11x). This method is commonly applied to growth-oriented fintech companies, using comparisons to historical valuation medians and peer group benchmarks to assess whether the current share price is reasonable.

• Event-Driven and Behavioral FinanceExpectation Gap / Expectation Management

  Bad news fully priced in and uncertainty resolved

  The report emphasizes that the 'earlier-than-expected' fine recognition is a positive development, as markets most fear ambiguity and the risk of larger penalties. Once the 'shoe drops,' even if the amount is substantial, it eliminates pending risk premiums and supports valuation recovery.

• Corporate Fundamentals and Financial FrameworkFree cash flow analysis

  Decomposition of non-interest expenses’ impact on profit

  The fine is treated as a one-time non-interest expense and analyzed separately from recurring business income (e.g., commissions and interest from non-compliant accounts), enabling a more accurate assessment of the company’s core profitability and future cash generation capacity.

Asset mapping & comparison

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

• FUTU.US (Futu Holdings)

  Directly Benefited / Impacted Entity

  Strengths

  International brand moomoo has >2 million users; Malaysia market nearing breakeven; diversified new product lines (prediction markets, Korean equities)

  Weaknesses

  Revenue from non-compliant mainland China accounts (~20%) faces regulatory pressure; rising customer acquisition costs

  Comparison

  Compared to peers, Futu demonstrates greater proactivity in international expansion and new product innovation, but faces more direct regulatory exposure

  Risks

  Ambiguity in regulatory implementation details; challenges in new-market expansion; volatility in capital markets performance

Key data

• Q1 RevenueHKD 5.9 billion2% below Goldman Sachs’ forecast; in line with expectations
• Q1 ProfitHKD 2.9 billion2% below Goldman Sachs’ forecast; in line with expectations
• CSRC FineRMB 1.85 billionRecognized in Q1, earlier than prior expectation of H2 2026
• Client AUMHKD 1.2 trillion1% below forecast
• Turnover Rate13.6x0.4x above forecast
• Target PriceUSD 114.37Raised from USD 102.13; implies 3.8% upside
• Target P/E11xRaised from 10x, based on 2027 earnings forecast

Impact & implications

The report concludes that while the early fine recognition weighed on Q1 profit, it reduces regulatory overhang and supports longer-term valuation recovery. However, given the stricter regulatory stance versus 2022 and the structural risk of declining revenue contribution from non-compliant mainland China accounts (representing ~20% of revenue), markets may assign limited valuation to this segment. New initiatives — prediction markets and Korean equities — and international expansion (Malaysia, Japan) will be critical future growth levers, though their timing and magnitude of profit contribution warrant close monitoring.

Risks

• Regulatory impact lower or higher than expected
• Capital markets performance stronger or weaker than expected
• Cost structure optimization in new markets slower than expected
• Challenges in new-market expansion

What to watch

• Detailed implementation rules for rectification of non-compliant mainland China accounts
• Tracking of revenue generated from such accounts
• Profit contribution from new markets and products