Clearly, demand wasn't spectacular for the IPO, but, when considering the dismal performance of some other recent China-based IPOs, FHL's pricing begins to look a little better. For instance, CNF Finance Holdings (CNF) is down 20% from its IPO price, TuanChe (TC) is down 19%, Pintec Technology (PT) has declined 7%, Niu Technologies (NIU) is off by 16%, and 111, Inc. (YI) has plummeted by 43%.
Of course, the economic downturn in China, combined with the volatile stock market in late 2018, has much to do with the weakness in those names. Those headwinds have abated since then, though, making for a more favorable climate for FHL. The company also has some pretty impressive financials and the deal was backed by tier one firms Goldman Sachs, UBS, and Credit Suisse.
Unfortunately, FHL will be opening for trading in what looks to be a rough market after the disappointing jobs report. At the moment, the Nasdaq is indicated to open lower by more than 1%.
FHL is a financial technology company offering a fully digitized brokerage platform that primarily serves the emerging affluent Chinese population. As of December 31, 2018, it had a user base of 5.6 mln people, over 502,000 registered clients, defined as users who have opened trading accounts with it, and over 132,000 paying clients, defined as registered clients who have assets in their trading accounts.
It provides investing services through its proprietary digital platform, Futu NiuNiu, a highly integrated application accessible through any mobile device, tablet or desktop. Its primary fee-generating services include trade execution and margin financing which allow its clients to trade securities, such as stocks, warrants, options and exchange-traded funds across different markets. It surrounds its trading and margin financing services and enhances its user and client experience with market data and news, research, as well as analytical tools, providing its clients with a data rich foundation to simplify the investing decision-making process.
The company also works with its strategic investor, Tencent Holdings, across a number of areas in a mutually beneficial relationship. In December 2018, Shenzhen Futu Network Technology, one of FHL's operating entities in China, entered into an agreement with Shenzhen Tencent Computer System Co, a subsidiary of Tencent.Pursuant to the agreement, Tencent agreed to assist FLH with traffic, content and cloud areas through its’s online platform.
Additionally, FHL and Tencent agreed to explore and pursue additional opportunities for potential cooperation in the area of fintech-related products and services to expand both parties’ international operations. Tencent also agreed to work with FHL in the areas of ESOP services, administration, talent recruiting and training.
Taking a look at its financial results, revenue surged by 160% for FY18 to HK$811.3 mln. This increase was primarily attributable to the increases in its brokerage commission and handling charge income and interest income.
Brokerage commission and handling charge income increased by 120.6% to HK$408.0 mln, primarily attributable to the increase in trading volume from HK$517.9 bln to HK$907.0 bln and the increase in its effective fee rates. Costs, which consist of brokerage commission and handling charge expenses, interest expenses and processing and servicing costs, increased by 128.8% to HK$249.6 mln in 2018 as all components of costs increased as a result of its growth.
Gross profit margin increased from 65.0% in 2017 to 69.2% in 2018, primarily attributable to the decrease in brokerage commission and handling charge expenses and processing and servicing costs as percentages of its total revenues.
As a result of the strong revenue growth and sharp increase in gross margin, FHL generated income before taxes of HK$200.8 mln.