Investment Thesis
Structural growth in online retail brokerage. As a leading online broker who offers superior trading experience to clients, Tiger is well positioned to benefit from the global wealth boom and increasing retail participation in the stock market.
Overseas expansion to drive growth. We believe Tiger could enjoy high growth in the near term by replicating its successful market entry into Singapore to other international markets including Hong Kong and Australia.
To benefit from higher profitability: The self-clearing migration and maturing operations in new overseas markets enable Tiger to improve its unit economics in the near-term.
Valuation:
Our target price of US$6 is based on 0.7x FY23F PEG (previously 0.65x), slightly below global peers' average of 0.9x to reflect its more volatile earnings. Our TP implies 37x FY23F PE.
Where we differ:
We believe the market has underestimated Tiger's potential(1)profitability uplift upon further self-clearing migration and (2) long-term ARPU growth in SG
Key Risks to Our View:
A substantial slowdown in the global economy, meaningful contraction in market liquidity, noticeable correction in global equities, and the implementation of restrictive market policies.
At A Glance
Issued Capital (m shrs) 165
Mkt Cap(US$m) 815
Major Shareholders (%)
- Wu (Tianhua) 13.2
- Tigerex Holding Ltd 10.6
Free Float (%) 76.2
3m Avg. Daily Val.(US$m) 5.03
GICS Industry: Financials/ Diversified Financials
Back to profitability in 3Q22
Despite the challenging market conditions in 3Q, Tiger managed to stage a turnaround sequentially and achieve net profit of us$3.3m (2022: net loss of US$0.9m). Non-GAAP net profit, which better reflects the y-o-y trend of improvement of its business, grew 26% to US$6.6m. The earnings improvement was primarily driven by stronger-than expected interest income (+41% y-o-y; +72% q-o-q) amid rate hikes, as (1) its margin lending balance remained relatively stable (est. -7% y-o-y) when compared to the decine in client assets (-37% y-o-y), and(2) deposit income from idle cash became more significant with daily average one-month LIBOR/ HIBOR/ SIBOR rising to 2.5%/ 1.6%2.2% respectively from near zero a year ago. Brokerage commission income declined along with market volume contraction (-27% y-o-y, -13% q-o-q), while cash equities commission fee rate remained largely stable at 6.7bps.
On track in client acquisition and overseas expansion
Tiger added 22.7k new clients during 30, with c.60%/20%/20% from Singapore/ Australia & New Zealand/ Mainland China respectively. We believe Tiger is well on track to achieve its FY22 guidance of 100k new client additions, with 9M22 achieving c.81% of its target.
Overseas expansion continued to progress well with key highlights below:
- SG: Client acquisition quality improved further with new clients on average depositing US$11k during the quarter (2Q22: US$9k)
- AUNZ: More meaningful contribution to the overal client base, accounting for c.20% of the quarterly incremental clients(1Q22:>10%)
- HK: Management confirmed the launch of its retai trading business in Dec22, following its successfu upgrade on its self-developed HK stock trading infrastructure.
In addition, acquisition efficiency remained stable with customer acquisition cost (CAC) rising to US$326(2Q22 Us$300). Excluding brand building campaigns, which we think are critical to succeed in entering new markets, the metric improved to US$175 (2Q22: US$200). While CAC could fluctuate more after Tiger enters the HK market management expressed that they would adopt a dynamic approach on marketing spend. We believe the incremental benefits from the self-clearing migration of HK stocks ccoo also offset part of the higher cost.
Client satisfaction playing out
Tiger has recorded robust net asset inflow YTD despite the challenging market conditions especially in 3Q. This reflects the potential lifetime value of its client base and strong client satisfaction, with client retention rate remaining at a high level of 98%.
We think the multiple new initiatives rolled out this quarter could further sharpen its edge vs traditional players and optimise client experience. These should bear fruit in a more evident manner once sentiment turns.
US fractional share trading: Enabled by its self-clearing capability, Tiger could lower clients'threshold on holding higher-priced stocks, which could stimulate demand and create an edge over other brokers
WM platform upgrade: " Tiger Vault" was launched in SG for clients to diversify into cash management and othen fund products for more stable returns during high- interest rate era
ESOP business upgrade: The company raised Rmb31.75m from angel investors for 28.5% of its ESOP business and has upgraded the brand to"UponeShare to enable faster growth by leveraging on the funds and ecosystem of its strategic investors
Reiterate BUY with TP of US$6, implying 21% upside
We have slightly revised up FY23F/24F earnings by 4%/9% respectively to factor in impact of faster rate hikes and mild recovery in market turnover, as well as 3-5% higher staff cost due to earlier-than-expected entry into the Hk market for conservativeness. Considering 4Q-to-date turnover in both HK and US markets rebounding by 22%/7% q-o-q, ano daily average one-month LIBOR/HIBOR/SIBOR going up to 3.7%/3.0%/3.5%, these have set the stage for further earnings recovery in 4Q and beyond.
OurTP is derived from a higher 0.7x FY23F PEG (previously 0.65x) to reflect (1) better earnings outlook amid improved investor sentiment, (2) a lift in global peers PEG average to 0.9x from 0.8x and (3) reduced delisting risk in light of quicker-than-expected end to the US audit inspections of Chinese ADRS.