UP Fintech Holding: Look Beyond One-Offs And Consider Positive Growth Momentum

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UP Fintech Holding: Look Beyond One-Offs And Consider Positive Growth Momentum

seekingalpha09-02

I am not worried about UP Fintech's Q2 2024 earnings miss, as the company's second quarter bottom line was affected by a non-recurring provision.Instead, my focus is on TIGR's strong Q2 top line ...

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Daniel Balakov My Buy investment rating for UP Fintech Holding Limited (NASDAQ:TIGR) remains unchanged. Investors should ignore the headline earnings miss for TIGR, as this was attributable to a one-off provision which won't likely recur in the future. Instead, the market should reward UP Fintech for its positive growth momentum. TIGR achieved significant revenue growth acceleration in Q2 2024, and delivered a substantial top line beat. The favorable growth momentum for TIGR is likely to be sustained going forward, taking into account its actual newly funded accounts for Q2 and the company's full-year guidance. The current write-up reviews TIGR's latest second quarter financial performance. UP Fintech's Q1 2024 results were in the spotlight for the earlier June 6, 2024 article. Top Line Was Boosted By Higher Commissions UP Fintech's revenue growth accelerated from +9.6% YoY in Q4 2023 and +19.0% YoY in Q1 2024 to +32.4% for the most recent quarter as disclosed in its results announcement. According to data sourced from S&P Capital IQ, TIGR's actual Q2 2024 top line of $87.4 million turned out to be +24.5% higher than the sell side's consensus revenue forecast of $70.2 million. The company's top line is derived from commissions, financing service fees, interest income, and other revenues. In this latest quarter, commissions were the most significant revenue growth driver for UP Fintech. TIGR's commissions rose by +54.9% YoY to $34.1 million in Q2 2024, which were equivalent to 39.0% of the company's total revenue for the recent quarter. Its robust commission revenue growth was supported by an increase in both trading volume and the number of newly funded accounts. UP Fintech witnessed a +62.5% YoY surge in trading volume to $105.9 billion in the second quarter of this year. The company's number of newly funded accounts also jumped by +68.2% YoY to 48,900 for the latest quarter. UP Fintech cited \"a more active market environment\" as the main reason for its good Q2 2024 top line performance in the company's Q2 2024 results announcement. I think there are two key factors that will allow TIGR to maintain its positive revenue growth momentum in the second half of the current year and beyond. The first factor relates to the favorable growth outlook for newly funded accounts. TIGR indicated at its Q2 2024 analyst briefing that \"we are confident of delivering our annual guidance of at least 150,000 newly funded accounts in 2024.\" This implies that UP Fintech's number of newly funded accounts could potentially expand by +21.8% this year as compared to the 123,110 newly funded accounts additions it achieved last year. Almost two-thirds of the 48,900 newly funded accounts for Q2 2024 came from Southeast Asian markets. UP Fintech mentioned that its operations in Singapore, a key Southeast Asian market, saw a \"notable improvement in both user activity and stickiness\" with \"new products\" as per its second quarter earnings call commentary. At its recent quarterly earnings briefing, TIGR also revealed that \"the number of newly funded users (for July and August) also continued the rapid growth as we saw in the second quarter.\" As such, UP Fintech's commission revenue is likely to grow strongly in the second half of 2024, as the company continues to increase the number of newly funded accounts at a fast pace. The second factor is the limited impact of interest rate movements. A cut in interest rates won't have a substantial impact on TIGR's future top line. UP Fintech stressed at its second quarter analyst call that it has the potential to \"grow market activities leading to a more active trading volume and commission income\" so as to offset any weakness in interest income. Specifically, TIGR estimates that a 25 basis points Fed rate cut in September 2024 will only decrease its Q4 2024 top line by approximately -1%. Bottom Line Performance Was Impacted By A Non-Recurring Item TIGR's GAAP net profit dropped by -80.3% YoY to $2.6 million in the second quarter of 2024. The company's Q2 2024 GAAP EPS of $0.016 came in -77.1% lower than the analysts' consensus bottom line projection of $0.070 per share as per S&P Capital IQ data. In its Q2 results announcement, UP Fintech explained that it suffered from a \"$13.2 million loss provision for the suspended Hong Kong stock pledge business faced with an extreme market situation and significant price drop, leading to a provision for the loan balance.\" At its Q2 2024 results briefing, TIGR indicated that the Hong Kong stock pledge business was discontinued \"since last year before this incident happened\" and clarified that \"this particular transaction (leading to the provision) continued because it was still under contract.\" Therefore, the $13.2 million provision is a non-recurring item that wouldn't affect TIGR's future bottom line performance. Furthermore, TIGR's earnings before tax would have expanded by +8.3% YoY in Q2 2024 excluding this one-off item. Separately, UP Fintech's future earnings are likely to be boosted by favorable operating leverage effects. As an example, TIGR's largest operating cost item, employee compensation and benefits expenses, increased by +19.8% YoY to $23.9 million for Q2 2024. This was much less than the +32.4% YoY top line expansion that UP Fintech achieved in the most recent quarter. In the preceding section, I have already drawn attention to TIGR's healthy revenue growth prospects. It is highly probable that the company's net income will expand at a faster pace than its revenue going forward, taking into account the effects of operating leverage. In summary, I anticipate that UP Fintech's net profit will recover in the coming quarters with the absence of one-off provisions and the positive impact of operating leverage. Stock's Valuations Are Appealing The market currently values UP Fintech at 12.6 times consensus FY 2024 normalized P/E as per S&P Capital IQ data. In comparison, the company's peer Futu Holdings (FUTU) is now trading at a relatively higher consensus FY 2024 normalized P/E multiple of 13.6 times, and TIGR's three-year historical mean forward P/E multiple was even better at 24.6 times. Also, TIGR's normalized earnings are projected to expand at a +16.8% CAGR for the FY 2023-2025 time frame, based on consensus data taken from S&P Capital IQ. This implies that a higher mid-to-high teens P/E ratio for UP Fintech aligned with its future bottom line growth is justified. Key Risks Certain risk factors pertaining to TIGR are worthy of attention. The company's future interest income and total revenue could disappoint investors if the Fed initiates larger-than-expected rate cuts. Also, if financial markets perform poorly, UP Fintech's commission revenue and overall top line growth might be weak. Conclusion  UP Fintech's positive growth momentum in Q2 2024 and favorable financial outlook aren't fully priced into the stock's valuations. I find TIGR's low-teens P/E multiple to be enticing, and my decision is to maintain my Buy rating for the stock.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"1","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"hasMoreComments":false,"newsSizeData":{"likeSize":6,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false}}