UP Fintech Reaps Benefits From Early Move Overseas

Key Takeaways:

• UP Fintech’s revenue increased 19% year-on-year in the first quarter as its number of funded accounts grew 15%
• The online brokerage has entered Hong Kong as its latest new market under a stepped-up international expansion after a major clash with the Chinese regulator

By Warren Yang

The savvy company is one that can sense a problem early and address it before it boils over. Online stock broker UP Fintech Holding Ltd. TIGR deserves some credit for sensing and preparing for regulatory storm clouds that are a common feature of the Chinese business landscape.

Just a year and a half ago, the company, known locally as Tiger Brokers, found itself suddenly in deep hot water after the Chinese securities regulator all but shut it down in the country, along with rival Futu Holdings Ltd. FUTU, for violating domestic laws related to cross-border trades. Fast-forward to the present, when the company’s latest financial results show this tiger has not only moved on from its brush with death but is even prospering by placing its bets on a stronger international focus.

Such quick recoveries are no easy feat, forcing companies to reinvent their business models, often from scratch, in a race against time before their funds run out. Venturing out of China, like UP Fintech has done, is always an option that sounds good in theory. But the reality isn’t always so easy since foreign markets have their own complexities, not to mention established local competition.

UP Fintech and Futu both had plenty of time to prepare before their situations at home blew up at the end of 2022. Signals were coming in previous years in comments from various regulatory officials, prompting both companies to keep their heads down at home while quietly building up overseas operations one new market at a time. Those efforts are paying off nicely now.

UP Fintech’s revenue increased 19% to about $79 million year-on-year in the first quarter, as its portfolio of funded accounts – those containing actual money for trading – grew 15%, according to its latest results released last Wednesday. Its net profit jumped more than 50% to $12.3 million, which owed largely to “other” income that’s not part of what it classifies as revenue.

Following the announcement, UP Fintech shares rallied 16% through the end of last week.

While the profit surge looks attributable to a non-operational factor, UP Fintech’s revenue growth still looks pretty solid, and speaks to its early move beyond China. The company in the past made its money by helping China-based investors buy U.S.- and Hong Kong-listed stocks. But it has added other stock markets to its services in recent years and now targets customers outside China since being banned from signing up new Chinese customers.

UP Fintech was originally based in Beijing but is now incorporated in Singapore, and generates more than 90% of its revenue outside China. Singapore is the company’s largest market, accounting for more than half of its new funded accounts in the first quarter. But it also has operations in the U.S. and the Australia/New Zealand region. Last year it also launched services in Hong Kong, which has become the main market for Futu as well.

Hong Kong expansion

UP Fintech entered Hong Kong through its acquisition of a firm called Ocean Joy in late 2021. It took a while to get its Hong Kong business up and running after that. But since the service launch last year, the company has quickly gained traction. About 10% of UP Fintech’s new funded accounts came from Hong Kong in the first quarter, not far behind about 15% for the Australia/New Zealand market.

Hong Kong’s revenue contribution for UP Fintech may continue to increase as it expands its services in the city that is part of China but has its own financial system that is far more open to foreigners than Mainland China’s two main markets in Shanghai and Shenzhen. It has started offering spot cryptocurrency trading services for professional investors in the city. And in March, it received a so-called Type 9 license from Hong Kong’s securities regulator, paving the way to provide asset management services for both retail and professional investors.

UP Fintech hasn’t exactly abandoned the China market, though its activity there has been limited after the China Securities Regulatory Commission (CSRC) said that it, as well as Futu, were allowing their China-based customers to make cross-border trades without a required brokerage license. Both companies have been in a sort of state of suspended animation since then, ordered to stop accepting new clients in China without being forced to shut down accounts of existing Chinese customers.

UP Fintech had a long period to brace for the bombshell. As early as 2016, the CSRC ordered one of the company’s entities in China to stop working with other companies unauthorized to provide securities services in the country. In response, UP Fintech took steps to position the unit as an online provider of information for investors in China, rather than a provider of actual financial services like securities trading.

Thus began UP Fintech’s focus on overseas expansion, often using acquisitions as a shortcut to enter new markets. It’s still unclear if the CSRC will ultimately grant securities-trading licenses to either UP Fintech or Futu. Some see the fact that the companies haven’t been ordered to shut down all their Mainland-based accounts as a positive signal, and neither company has indicated it believes such an outcome will happen imminently.

While UP Fintech has moved its base to Singapore, Futu has been more focused on Hong Kong, although it also has ventured into Singapore and the U.S. In its latest move to expand in Hong Kong, Futu last week announced its purchase of a 44% stake in Airstar Bank, an online bank, for HK$440 million ($56 million).

UP Fintech’s revenue increased much faster in the first quarter than Futu’s, which rose by a more modest 3.7%. But UP Fintech’s revenue base is much smaller than Futu’s, meaning it still has a lot of catching up to do. That big catchup distance may be reflected in UP Fintech’s relatively low price-to-sales (P/S) ratio of 2.7, which is well behind the 8 for Futu. That gap may narrow if UP Fintech’s overseas efforts continue to bear fruit. Its stock jump after the first-quarter earnings announcement looks like an investor vote of confidence in the company, though it may need to make faster progress to further close the valuation gap.

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.