On Monday, Morgan Stanley (NYSE:MS) upgraded Futu Holdings Limited (NASDAQ:FUTU) stok from Equalweight to Overweight, significantly increasing the price target to $115 from the previous $70. This adjustment reflects the firm's growing confidence in the brokerage's expansion, particularly in Singapore, and its potential for overseas growth.
The brokerage's ongoing efforts to broaden its franchise in Singapore this year have been pivotal in Morgan Stanley's reassessment. The firm has adjusted its model to incorporate a more substantial contribution from international markets, leading to a raised forecast for client assets by 5%, 8%, and 11% over the next few years, without altering trading velocity assumptions.
Morgan Stanley anticipates that inflows from overseas markets will account for 25-30% of Futu Holdings' total inflows in 2024, with expectations for this figure to increase to 60% by 2026. This international expansion is projected to fuel annual client asset growth of 10-11% from 2026 to 2030.
The analyst highlighted Japan as a market with significant potential, predicting it could represent 6-7% of Futu's client assets and revenue by 2026 due to current initiatives aimed at improving customer conversion rates.
The bullish outlook, which factors in sustained double-digit growth in assets under management (AUM), has resulted in a 64% increase in the price target, now set at $115 per American Depositary Share (ADS).
In other recent news, Futu Holdings Limited has been the center of attention due to several significant developments. Deutsche Bank (ETR:DBKGn) recently increased its price target for the company to $118.40, citing resilient trading volumes and stable commissions.
This adjustment came ahead of Futu's third-quarter earnings report, with the forecast suggesting an 11% rise in non-GAAP earnings and a 4% growth in revenues quarter over quarter.
BofA Securities and JPMorgan also upgraded their price targets for Futu, reflecting revised earnings estimates and increased valuation multiples. BofA raised its target by 20% to $108.00, while 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.
In terms of performance, Futu demonstrated substantial growth in the second quarter of 2024, with a 29% year-over-year growth in paying clients and an 8% increase in net income. The company also raised its full-year guidance for new paying clients to 550,000.
These recent developments are amidst strong net client asset inflows and the launch of cryptocurrency trading in Hong Kong and Singapore. These are the latest developments in the company's journey, and they provide an insight into its current financial health and future prospects.
InvestingPro Insights
Futu Holdings Limited's recent upgrade by Morgan Stanley aligns with several key metrics and insights from InvestingPro. The company's market cap stands at $12.29 billion, reflecting its significant presence in the brokerage industry. Futu's strong financial performance is evident in its impressive gross profit margin of 92.99% and operating income margin of 52.84% for the last twelve months as of Q2 2023.
InvestingPro Tips highlight Futu's strong return over the last three months, which is corroborated by the data showing a 44.82% price total return over the same period. This recent performance supports Morgan Stanley's optimistic view on the company's growth trajectory. Additionally, analysts predict that Futu will be profitable this year, aligning with the firm's positive outlook on the company's expansion efforts.
However, investors should note that Futu is trading at a high P/E ratio of 22.61 relative to its near-term earnings growth, with a PEG ratio of 3.98. This suggests that while the company has strong growth potential, its current valuation may be on the higher side.
For those interested in a more comprehensive analysis, InvestingPro offers 8 additional tips for Futu Holdings Limited, providing deeper insights into the company's financial health and market position.
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