CITI'S TAKE

Recent rollout of the Stablecoin Bill in HK and PBOC’s positive comments on the role of stablecoin in international trade have spurred investor interest in crypto-related exposure. In our coverage, Futu/TIGR appear best positioned to benefit, as their VASP/VATP licenses could help them penetrate a sizable crypto trading TAM (w/ USD640bn annual crypto spot trading volume addressable, on our estimates). Reading across from Robinhood, we see the crypto brokerage biz driving decent 5.4%/3.0% revenue upside for Futu/TIGR in 2027E, which combined with albeit smaller revenue boost from the crypto exchange biz at 1%/1.2% in 2027E raise our TPs to USD176/USD14 for Futu/TIGR. Upgrade TIGR to Buy/H. Maintain Neutral/H on Futu as positives, in our view, are priced in after a 33% rally MTD.

Could Futu/TIGR achieve as much crypto success as Robinhood? — Futu/TIGR look well-positioned to build a lucrative crypto brokerage biz, in our view, thanks to their i) established local retail franchise (serving c.1/3rd of local retail investors in HK & SG), ii) competitive crypto brokerage pricing only charging 8bp/5bp crypto spot trading fee rate in Hong Kong (vs. peers’ 22bp-150bp) and iii) solid track record of cultivating client trading habit. Reading across from Robinhood’s experience, we see decent 5.4%/3.0% revenue upside for Futu/TIGR in 2027 from crypto brokerage biz, driven by 1) potential client asset mix shift towards cryptocurrency assets, which in Robinhood’s case has structurally been uplifted to form c.13%-15% of total client assets in recent years (from only 2% in 2020); 2) potential paying customer/client asset growth acceleration; and 3) potential crypto fee rate upside longer term, once Futu/TIGR have secured sufficient local crypto market share.

Crypto exchange monetization much more difficult in HK vs. US — despite it being harder to apply for a VATP /crypto exchange license in HK. This is mainly because most of the more lucrative revenue streams that made Coinbase a successful compliant crypto exchange in the U.S. (e.g., retail brokerage, staking revenue, stablecoin revenue) are not yet accessible for Hong Kong crypto exchanges (due to regulatory constraints and competition from non-licensed mainstream exchanges). Hence, HK-based crypto exchanges had to rely on the less-lucrative institutional biz instead (e.g., OTC crypto brokerage, B2B crypto infrastructure biz, and crypto custodian biz) for monetization. Futu/TIGR’s crypto exchange biz could face additional monetization challenges vs. incumbents (OSL/Hashkey) as i) Futu/TIGR’s VATP license are still pending phase 2 inspection, w/ crypto custodian assets capped at USD25mn, which constrains growth, and ii) prospective downstream clients (e.g., other crypto brokers) may see Futu/TIGR as a competitive threat and hence, prefer to cooperate with pure-play, incumbent exchanges as upstream crypto infrastructure providers instead.

Catalysts — In addition to the above, we see other upside potential for Futu/TIGR, from i) stablecoin revenue, although in our base case, we see HK regulator’s key purpose to launch HKD/RMB stablecoin is to drive HKD/RMB internationalization and payment diversification away from SWIFT system, hence may not benefit Futu/TIGR; ii) crypto derivative trading and crypto margin biz, which is not yet permitted by SFC in HK, but has proven to be a lucrative biz by mainstream crypto exchanges; iii) potential synergy btw TIGR & Huobi founder Li Lin’s Avenir Group.