BUY
Last Traded Price (20 Mar 2024): US$4.06 (NASDAQ : 16,369)
Price Target 12-mth: US$5.80 (43% upside) (Prev US$6.20)
What’s New
• 4Q23 non-GAAP net earnings declined to US$1.1m; largely in line if excluding impact from wider-than-expected non-cash FX losses
• Added 39k new clients with higher contribution from SG’s nearby regions; FY24F new client guidance at 150k, slightly above expectations
• Lowered FY24F/25F earnings by 6%/9% to reflect higher-than-expected contribution from institutional asset that yields lower return, partially offset by stronger client growth
• Structural improvement in profitability intact; maintain BUY, TP lowered to US$5.8 on same 0.6x FY24F PEG multiple
Margin expansion trend intact
Investment Thesis
Economies of scale from global expansion. Up Fintech, also known as Tiger, is a leading online broker aiming to serve global investors, with Singapore as its major market. Tiger’s user-friendly trading experience and active investor community are its strong competitive advantages, enabling it to grow rapidly and win market share from traditional brokers. Its recent expansion into Australia and Hong Kong has also presented it with greater room for growth and diversification.
Structural improvement in profitability. We revised down our 24F/25F earnings forecasts by 6%/9% to reflect the higher-than-expected contribution from its institutional asset that yields a lower return, partially offset by stronger client growth and improved sentiment. Yet, we think the structural improvement in profitability remains intact, driven by (1)consistent net asset inflows from clients, (2) self-clearing migration that would drive down clearing costs, and (3) its improving client acquisition efficiency as overseas market operations mature.
Rebounding market trading volume. We have seen a decent q-o-q rebound in US market ADT in 1Q24 and expect the improving run to last, in view of the expected interest rate cuts. We think Tiger’s trading volume should rebound more evidently than the rest of the market, as retail traders are usually more sensitive to the improved sentiment. The strong US equities market is also a favourable tailwind for Tiger to achieve its FY24 new client acquisition target of 150k.
Maintain BUY with lower TP of US$5.8 (prev.US$6.20). TP is lowered to reflect the lower earnings forecast. Our TP is based on the same 0.6x FY24F PEG multiple, slightly lower than its peers due to its smaller and less diversified client portfolio, with a 30% earnings CAGR during FY20-25F. This implies 19x FY24F PE.
WHAT’S NEW
Margin expansion trend intact Non-GAAP net earnings were down to US$1.1m (3Q23/4Q22: US$16.0m/US$4.5m), and below the consensus estimate of US$4.4m. Major drags for the significant q-o-q decline were due to (1) the non-cash FX losses due to USD depreciation (-US$9m q-o-q) and (2) higher seasonal G&A expenses as expected (+US$2m q-o-q). We view the earnings performance to be largely in line as the key surprise was the wider-than-expected non-cash FX losses, which should be non-recurring, as the exchange rate has stabilised since 1Q24.
Brokerage income was resilient, down 5% q-o-q, reaching US$22m, as the higher notional volume of derivatives (+7%) partially offset the decline in equity volume (-11%). Net interest income, if including short-term investment gains (est. to be US$5m) recorded under other income, would be slightly down to US$29m (3Q23: US$30m) due to higher interest expenses from the higher interest rate.
Client acquisition in 4Q23 came in stronger than expected, with an addition of 39k during the quarter (3Q23: 25k), the highest over the last eight quarters. Singapore and nearby regions accounted for 60% of the growth, and management suggests the sequential increment was largely contributed by Singapore’s nearby regions, as the company engaged in more online advertising, which reached beyond Singapore. Acquisition efficiency has improved with client acquisition cost (CAC) further lowered to US$148 (3Q23: US$211), while the average deposit from a new SG client reached a record high of US$16k.
The company also recorded strong client asset inflows of US$8.2bn during the quarter, largely thanks to the onboarding of a few institutional clients. Yet, the majority of the institutions are private market funds that trade much less frequently and have a lower demand for margin financing, thus yielding lower returns for Tiger on the basis of assets under management (AUM). Reflecting the new information that a larger-than-expected part of Tiger’s client assets indeed came from institutions, we revised down our FY24F/25F earnings forecasts by 6%/9% to reflect a lower margin financing forecast. That is partially offset by stronger retail client growth and trading volume projections due to improved market sentiment.
Looking ahead, we expect 1Q24 profitability to rebound strongly, as (1) US market volume is expected to grow at a mid-teen rate q-o-q, (2) retail-focused brokers like Tiger tend to show greater elasticity, and (3) the exchange rate has stabilised since 2024. The structural improvement in profitability, driven by continuous client and asset growth, remains intact, in our view.
Maintain BUY with lower TP of US$5.8. TP is lowered to reflect the lower earnings forecast, as explained above. Our TP is based on the same 0.6x FY24F PEG multiple, slightly lower than its peers due to its smaller and less diversified client portfolio, with a 30% earnings CAGR during FY20-25F. This implies 19x FY24F PE. We think the market might have overreacted to the earnings miss (sh px -10% after results), which was largely due to non-recurring non-cash items. The expected rebound in 1Q24 profitability and consistent client growth will be the key catalysts ahead.
(Note: Primary analyst changed from Ken Shih to Edmond Fok)
Company Background
Up Fintech Holding Ltd, also known as Tiger, is a leading online brokerage firm focusing on global investors. Its proprietary trading platform enables investors to trade in equities and other financial instruments on multiple exchanges around the world. Its platform can be easily accessed through its app and website.