J.P. Morgan Maintains Neutral Rating on Futu Holdings, Raises Target Price to $112

Overview

J.P. Morgan released an earnings review report on Futu Holdings for Q1 2026. Although the company's Q1 non-GAAP net profit fell 71% YoY due to confirming a proposed RMB 1.85 billion SEC fine, and core financial metrics were slightly below expectations, management remains optimistic about Q2 operating trends and emphasized strong overseas growth and progress in product diversification. Given the execution of the share buyback plan, improved regulatory clarity, and potential release of new business opportunities, J.P. Morgan raised Futu's forward P/E from 11x to 13x and increased the December 2026 target price from $100 to $112. However, considering the long-term impact of mainland business exit and regulatory uncertainty, it maintains a "Neutral" rating.

Core views

Performance Review and Short-term Pressures: Futu Holdings' Q1 2026 non-GAAP net profit was HKD 920 million, down 71% YoY, mainly attributed to the RMB 1.85 billion regulatory fine. Excluding this one-time impact, adjusted net profit declined 13% QoQ and grew 36% YoY, but was still 6% lower than J.P. Morgan and Bloomberg consensus estimates. Total revenue declined 9% QoQ to HKD 5.856 billion, mainly affected by the drop in brokerage commission rates (from 7.0bps to 6.4bps) and a 13% QoQ decline in interest income. Customer Assets Under Management (AUM) and Wealth Management AUM both declined slightly 1% QoQ, mainly due to market value fluctuations, but net inflows accelerated. Overseas Growth and Product Diversification as New Engines: International business performed brightly, with Moomoo revenue growing strongly YoY overseas, where revenue doubled in five countries. U.S. stock trading volume in Japan grew double digits QoQ, and options contract volume doubled; Malaysia market continued to lead new user growth, expected to reach breakeven within 6-12 months. Regarding product innovation, Futu's PantherTrade obtained Hong Kong SFC Virtual Asset Trading Platform (VATP) Phase II approval and full operation, planning to launch services such as virtual asset collateral financing; meanwhile, Moomoo Financial and Futu Clearing obtained U.S. FCM licenses, and are about to launch prediction market trading services for U.S. retail customers, viewed as new customer acquisition and activation tools. Regulatory Rectification and Mainland Business Impact: Management emphasized compliance first, having completely stopped opening new accounts for holders with Mainland identities and rejecting tens of thousands of non-compliant applications over the past two years. By end of Q1, Mainland funded accounts accounted for 13% of total, related customer assets 17%, and contributed approximately 20% of revenue. Regulatory rectification period does not require mandatory account closure, but restricts customers located in Mainland China from depositing funds and buying securities. J.P. Morgan estimates that regulators requiring offshore online brokers to exit Mainland business within two years will expose Futu to revenue and downside risks of approximately 20% and 30% respectively, which is also the main reason for maintaining the Neutral rating. Valuation Adjustment and Outlook: Based on EPS accretion from share buybacks, partial elimination of regulatory uncertainty, and positive progress in product diversification, J.P. Morgan lowered 2026 normalized EPS expectations by 3%, but raised target P/E multiple from 11x to 13x (higher than historical low of 10x during regulatory tightening cycle, but lower than 5-year average of 15x). If Futu can demonstrate strong business growth excluding Mainland visitor customers, stock price could be re-rated to 15x PE level.

Analysis framework

This report adopts a comprehensive framework of 'Fundamental Deconstruction + Regulatory Scenario Analysis + Valuation Multiple Adjustment'. First, analyze Q1 performance through volume-price breakdown, distinguishing one-time regulatory fines from core business trends, focusing on customer growth, AUM changes, and commission rate variations. Second, utilize geographic segment analysis to highlight the hedging effect of overseas business (especially Japan, Malaysia, Singapore) against Mainland business contraction, assessing breakeven timepoints for new markets. Third, combine regulatory policy orientation to quantify potential impact of Mainland business exit on overall revenue and profit (downside risk calculation). Finally, at the valuation level, comprehensively consider EPS accretion effects from share buybacks and changes in regulatory risk premium, dynamically adjust target P/E multiple, thereby deriving target price.

Methodology notes

• Valuation MethodPE/PEG valuation

  PE valuation based on Normalized EPS

  The report uses normalized EPS excluding one-time fine impact as benchmark, combined with industry regulatory cycle and historical valuation range, assigning 13x PE target multiple. This method is commonly used for highly volatile companies or those with one-time gains/losses to more realistically reflect valuation of sustainable operations.

• Industry/Industrial Analysis FrameworkSupply and Demand Framework

  Regulatory Policy Constraint on Supply Side and Geographic Shift on Demand Side

  Analyzes how regulatory policies constrain supply to Mainland clients (prohibiting account opening, restricting trading), while observing how demand shifts to overseas markets and diversified products (such as crypto, prediction markets), thereby assessing company business resilience and growth points.

• Company Fundamentals and Financial FrameworkProfitability Quality Analysis

  Core Profitability Assessment Excluding Non-Recurring Items

  When analyzing Q1 performance, focus on excluding the 1.85 billion regulatory fine as a non-recurring item to restore the company's true operating profit level, compare with market expectations, to judge the health of the business itself.

• Competition and Strategy FrameworkMoat / competitive advantage

  Product Diversification and Customer Stickiness Construction

  By introducing new products like cryptocurrency trading, prediction markets, and expanding overseas market share, Futu aims to reduce dependence on single brokerage business, enhance customer stickiness, and build competitive barriers distinct from traditional brokerages.

Asset mapping & comparison

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

• Futu Holdings (FUTU.US)

  Direct Beneficiary/Impacted Entity: Overseas growth and product diversification offset Mainland business contraction risk

  Strengths

  Overseas revenue strong growth (5-country revenue doubled), obtained Hong Kong VATP license and U.S. FCM license, product diversification (cryptocurrency, prediction markets) enhances stickiness, large-scale share buyback supports EPS

  Weaknesses

  Mainland business exit resulting in approx 20-30% revenue/profit gap, downward pressure on commission rates, rising customer acquisition cost (CAC)

  Comparison

  Compared to pure Mainland brokerage firms, Futu has stronger overseas hedging capabilities; compared to traditional international brokerages, it holds advantages in Chinese-speaking communities and tech experience

  Risks

  Regulatory enforcement exceeds expectations, overseas market expansion below expectations, weakening of Chinese tech stocks affecting trading volume

Key data

• 2026Q1 Non-GAAP Net ProfitHKD 920 millionDown 71% YoY, mainly impacted by RMB 1.85 billion regulatory fine; Excluding fine, up 36% YoY
• 2026Q1 Total RevenueHKD 5.856 billionDown 9% QoQ, Up 25% YoY, 3 percentage points below J.P. Morgan estimate
• New Deposited Accounts225,000Added in Q1, management maintains annual guidance of 800,000 new deposited accounts
• Blended Commission Rate6.4 bpsDown from last quarter's 7.0 bps, causing brokerage revenue down 5% QoQ
• Target Price Adjustment$100 -> $112Based on 13x 2026E Normalized EPS, previously 11x
• Mainland Business Revenue Share~20%Regulatory requirement to exit Mainland business expected to cause revenue and profit downward ~20% and ~30%
• Share Buyback ProgressUSD 418 millionAmount repurchased as of May 27, remaining quota USD 382 million

Impact & implications

For Futu Holdings, short-term stock price may continue to be suppressed by regulatory sentiment, but target price increase reflects institutional recognition of its overseas growth capability and product innovation value. Long term, successfully shedding Mainland business reliance and achieving scaled profitability in overseas markets is the key turning point. For investors, closely monitor whether Q2 can deliver double-digit QoQ growth in AUM and trading volume, as well as breakeven progress in new markets like Malaysia. If data confirms strong growth in non-Mainland business, valuation有望 further repair.

Risks

• Weak performance of Chinese tech stocks, leading to sluggish trading volume growth
• Regulatory risk, including data security law compliance and execution details of Mainland business exit
• Decline in Hong Kong Interbank Offered Rate (HIBOR), leading to downward interest income
• Intensified overseas market competition, continuously rising customer acquisition costs

What to watch

• Q2 customer AUM and trading volume QoQ growth situation (management guidance is double-digit growth)
• Whether Malaysia market achieves breakeven on schedule within 6-12 months
• Progress and user feedback on U.S. prediction market product launch
• Data verification of business growth excluding Mainland Visitor Customers (MCV)