On Tuesday, Citi revised its stance on Futu Holdings Limited (NASDAQ:FUTU), downgrading the stock from Buy to Neutral, despite increasing the price target to $95 from $79. The adjustment follows Futu's announcement of a record-high quarterly non-GAAP net profit after tax (NPAT) for the third quarter of 2024, which reached HKD1.40 billion. This figure represents an increase of 7.9% quarter-over-quarter and 20.8% year-over-year.
The company's gross profit also saw significant growth, rising by 10.4% quarter-over-quarter and 27.9% year-over-year to HKD2.94 billion in the third quarter of 2024. This growth was attributed to a considerable surge in trading volume, which went up by 17.3% quarter-over-quarter and an impressive 74.7% year-over-year, primarily due to robust U.S. stock trading activity. Additionally, a continuous rise in net interest income was reported, increasing by 5.9% quarter-over-quarter and 5.7% year-over-year, even in light of a Federal Reserve rate cut in September 2024.
Futu's return on equity (ROE) rebounded to 20.2% in the third quarter of 2024, marking a slight increase of 0.5 percentage points quarter-over-quarter and remaining relatively flat year-over-year. In celebration of its five-year anniversary of being listed on NASDAQ, Futu declared a special cash dividend of $2 per American Depositary Share (ADS), a first in the company's history. Previously, Futu had exclusively utilized share buybacks for its shareholder return program. This special dividend results in a yield of 2.17%, based on the market's closing price of $92.3 on November 18, 2024.
In light of these developments, Citi has revised its earnings estimates for Futu for the years 2024 through 2026, projecting an increase of approximately 9% to 24%. Consequently, the firm has raised its price target for Futu Holdings to $95, up from the previous target of $79. Despite the positive financial results and the special dividend announcement, the stock's rating has been downgraded to Neutral from a previous High Risk rating.
In other recent news, Futu Holdings Limited has been the focus of several significant developments. Morgan Stanley (NYSE:MS) upgraded Futu Holdings from Equalweight to Overweight, reflecting confidence in the company's expansion, particularly in Singapore. The firm anticipates that inflows from overseas markets will account for a significant portion of Futu Holdings' total inflows in the coming years.
Analysts at Deutsche Bank (ETR:DBKGn) and JPMorgan also upgraded their price targets for Futu, citing resilient trading volumes and stable commissions. Deutsche Bank's forecast suggests an 11% rise in non-GAAP earnings and a 4% growth in revenues quarter over quarter.
BofA Securities echoed this positive sentiment, raising its price target by 20% to $108.00, reflecting revised earnings estimates and increased valuation multiples. The firm pointed to the potential for asset reallocation into stock markets following the Federal Reserve's rate cut and recent market rallies as factors that could further enhance client asset inflows and trading activities for Futu.
JPMorgan significantly hiked its target from $88.00 to $160.00, maintaining an Overweight rating due to improving retail sentiment in Hong Kong and mainland China. The firm's optimism is driven by several factors, including the improving retail sentiment in these regions and the reasonable valuation of Futu Holdings.
InvestingPro Insights
Futu Holdings Limited's recent financial performance aligns with several key metrics and insights from InvestingPro. The company's strong quarterly results are reflected in its impressive market performance, with InvestingPro data showing a 47.63% price return over the last three months and a 54.94% return over the past year. This robust performance is consistent with the InvestingPro Tip highlighting Futu's "Strong return over the last three months" and "High return over the last year."
The company's profitability, as evidenced by its record-high quarterly non-GAAP net profit, is further supported by InvestingPro data indicating a gross profit margin of 92.99% and an operating income margin of 52.84% for the last twelve months as of Q2 2024. These figures underscore Futu's operational efficiency and align with the InvestingPro Tip that the company has been "Profitable over the last twelve months."
While Citi has downgraded Futu to Neutral, it's worth noting that the company's P/E ratio stands at 22.31, which may be considered in light of the InvestingPro Tip suggesting that Futu is "Trading at a high P/E ratio relative to near-term earnings growth." This valuation metric could be a factor in Citi's decision to adjust its rating despite raising the price target.
For investors seeking a more comprehensive analysis, InvestingPro offers 8 additional tips for Futu Holdings, providing deeper insights into the company's financial health and market position.
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