Hello Benchmarkers!
Happy to have you on board! Today, we provide you with an easy briefing on an under-hyped and high-growth company:
Up Fintech Holding Limited (Tiger Brokers) 💸
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Please note that this article does not constitute investment advice in any form. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.
Tiger Brokers (NASDAQ:TIGR)
🔦 THE INTRO 🔦
Tiger Brokers is a Chinese online trading platform and brokerage service founded in 2014 by a former NetEase employee. The tool is available in Hong Kong, Mainland China, Australia, New Zealand, Singapore and is currently expanding into the U.S.
Overseas clients accounted for 20% of the newly funded accounts in the third quarter of 2020
The company is backed by Interactive Brokers (9.5% stake) and Xiaomi (14.1% stake), the CEO and founder (Wu Tianhua) holds a 25% stake
The company went public on the Nasdaq in March 2019 and raised $ 103m to fund its global expansion
🔥 HYPER GROWTH 🔥
Tiger Brokers is rapidly adding new customers, increasing the number of funded accounts and driving up commissions. Supported by the rise of disposable assets and online trading in Asia.
By the end of Q4 2018, it counted 82,000 funded accounts and $ 2.4B in account balance
It now counts over 214,000 funded accounts (up 111% year-over-year), the total account balance reached $ 10.9B, up 188% year-over-year
“Clients also continued to allocate more of their assets to our platform”
Total revenues increased by 148% year-over-year and reached $ 38m as the company added 46,800 accounts in Q3 only
“In the third quarter, we added 46,800 funded accounts, 7X the quarterly growth rate in the same period last year […]” Q3 2020 Earnings Release
Commissions reached $ 19.5m, up 212% from $ 6.2m a year earlier driven by an increase in usage
“The boom in Chinese people opening brokerage accounts mirrors what is happening in the US and Europe, where day-trading has boomed in popularity during the coronavirus pandemic.” Saloni Sardana For Business Insider
💸 DIGITAL BROKERAGE SERVICES 💸
Through its investing platform, Tiger Trade, Tiger Brokers provides brokerage services with access to the Australian, Singaporean, Hong Kong, Chinese and U.S. markets.
It also provides market data, news feeds, educational briefs and an investor community through laohu8.com
Users often praise Tiger Brokers’ low commissions, the app’s ease of use and the ability to invest in several markets from one app
Tiger Brokers and its digital competitors are fighting an uphill battle against the established banks. To win, they are focussing on a smoother customer experience, lower costs and faster execution.
“Emerging players seek to tackle a range of existing pain points, commonly experienced by investors engaged in stock trading […] including slow account opening process, relatively high trading fees, and delayed market data.” The Jakarta Post
🌏 RAPID EXPANSION 🌏
Their client base consists mainly in the emerging affluent Chinese population, taking advantage of a generational shift in wealth management. But it is also rapidly expanding in Singapore, Australia and New Zealand.
According to SimilarWeb, website visits increased by 306% in Singapore from July to December 2020 and reached 183,000 monthly visits
A considerable share of these users is not based in Singapore but in countries such as Malaysia, India and Indonesia
“About 25 per cent of Tiger Trade's users are based around the region and outside of Singapore. These users are leveraging on the platform's online account-opening feature to trade US and Hong Kong equities through a mobile platform, the company said. According to Tiger Brokers, most of these users come from Malaysia, Indonesia and India.” Rachel Mui for The Business Times
🌐 THE MARKET 🌐
Tiger Brokers is exposed to the digital investing market, which is projected to rise by around 10% each year in Asia over the 2020 - 2025 period. The continued rise in smartphone penetration and the increase in investable assets are driving the market.
According to the Boston Consulting Group (BCG), China’s household wealth is set to increase by about $ 14T by 2023 and reach $ 35T
Driven by the increasing liberalisation of the Chinese economy and growing overall wealth as the economy pivots from an industry to a service-based economy
“Chinese policymakers have accelerated moves to open wealth and asset management markets to overseas players.” By Qin Xu et Al.
Sill according to BCG, the Assets Under Management (AUM) in China are set to grow by 11% to 15% per year over the 2018 - 2025 period
Reflected by a 44% increase in the count of High Net Worth Individuals (investable assets of at least $ 850k) which currently stands at 1.67m individuals
“As China’s economy continues to grow and liberalize, we expect the country’s asset management market to more than double by 2025, becoming the second largest after the US, with technology playing a critical role.” By Qin Xu et Al.
According to UBS and the Financial Times, the Chinese mutual fund industry is set to reach RMB 47T ($ 7.5T) by 2025, up from RMB 11T in 2017
Driven by easing regulation aimed at boosting China’s investment scene
“Beijing unveiled far-reaching reforms in November intended to accelerate the growth of China’s under-developed investment industry with less than 5 per cent of Chinese household assets held in mutual funds.” Chris Flood for the Financial Times
⚡️ BROAD HORIZONS ⚡️
Looking past China, Tiger Brokers also has a considerable opportunity in Southeast Asia as smartphone penetration increases and technological advances drive down the portion of unbanked individuals.
According to the OECD, Southeast Asia’s GDP is set to grow by around 5% over the next 4 years
Driven by technological advances, foreign investments and the rise in internal consumption
“The vibrant investment climate bodes well for the country’s privatisation and foreign investment strategies. Recently signed free-trade agreements should buttress the export sector amid external headwinds” OECD on Vietnam’s prospects
According to KPMG, only 27% of those living in Southeast Asia have a bank account, translating into 438m unbanked individuals
Driven by limited infrastructure which restrains access to banking services
This may change as over 80% of the population access the internet daily through their smartphone
And smartphone penetration is rising fast. E.g. smartphone penetration stood at 29% in 2015 in Indonesia and is projected to reach 90% by 2025
“This translates to opportunity – especially for fintech companies. Traditional banking and finance firms are starting to take note of the potential arising from incorporating technology into their business. With a tremendous injection of innovation from tech-heavy Chinese giants like Alibaba and Tencent” The Asean Post
According to Bain & Company, the Assets Under Management in the Southeast Asia are set to grow from $ 10B to $ 75B over the 2019 - 2025 period
Representing a CAGR of 41%, the fastest growing financial segment
Driven by the increasing digital penetration
“More than 7 out of 10 adults in Southeast Asia are either “underbanked”—they have no access to credit cards or have no long-term savings product, for example—or are “unbanked,” without access to a basic bank account”
“[…] fintechs benefit from a more flexible cost structure and ability to build cleaner technology stacks, allowing them to provide competitive pricing and better user experiences” Florian Hoppe et Al.
🥇 FOUNDER-LED MANAGEMENT 🥇
Tiger Brokers is a founder-led company as Wu Tianhua is the group’s CEO. John Fei Zeng, is the CFO and spent 3 years at Goldman Sachs as Executive Director in Equity Capital Markets. Management has strong experience in technology and finance.
CEO and Founder of Tiger Brokers
Previously worked 9 years at NetEase Inc. At the company, he helped develop Youdao’s search engine
Graduated with a Master of Science in Computer Science from Tsinghua University
CFO of Tiger Brokers
Previously was a Director in the Global Capital Market division at UBS in China for 3 years. Also worked for 3 years as Executive Director of Equity Capital Markets at Goldman Sachs in China
Received an MBA from New York University and an undergraduate degree in Business Administration from the University of Southern California
✋ TAKE A BREATH ✋
So… This is a lot of information. Let’s summarise:
The Chinese and Southeast Asian markets offer considerable opportunities as wealth rises and banking penetration increases
Tiger Brokers is growing at a rapid pace in its home market, supported by the considerable increase in interest for investing platforms
This interest is pushed by headline-making IPOs, the rise of day trading and the unique position occupied by equities in a low-rate environment
These younger investors often look for cheaper investing tools and access to a broad set of markets, which is Tiger Brokers’ positioning
Going forward, China and Southeast Asia are still at the start of their transition as younger generations only start accumulating wealth and increasingly look for investment outlets
💸 FINANCIAL CHECK 💸
Total revenues increased 148.2% year-over-year to $ 38m in Q3 2020
Total net revenues increased 151.9% year-over-year to $ 35.2m
Commissions accounted for $ 19.5m, up 211% from $ 6.2m a year earlier
Operating expenses stood at $ 28m, up 69% from $ 16.5m a year earlier
Operating income increased to $ 7.4m from negative $ 2.5m in the same quarter of last year
Net income increased to $4.9m from negative $ 1.4m in the same quarter of last year
Net income attributable to UP Fintech (Tiger Brokers) increased to $ 3.8m from negative $ 1.3m in the same quarter of last year
Current assets stood at $ 2.1B at the end of Q3 2020 versus $ 1.9B in current liabilities
⚖️ REGULATORY WATCH ⚖️
The regulatory environment in China is becoming more open as access to markets is being provided to foreign institutions and investors. Of course, one should not forget that under certain events, the governing bodies might take restrictive actions (e.g. AntGroup IPO, Alibaba)
“If you’re any financial institution, a fund manager big or small, China is now an open market to you […] It is really a high point of openness and capital market development for China” Fraser Howie for the Financial Times
🚩 FRAUD REPORTS 🚩
New Zealand’s Financial Markets Authority has issued a formal warning against Tiger Brokers for failing to conduct the required customer due diligence. It stated the following:
“The severity of Tiger Brokers’ likely breaches meant that a public warning was necessary, especially because it is a large business that is growing fast in New Zealand. The issues were wide ranging and weren’t minor or technical, meaning there was potential for immediate and ongoing damage to the integrity of our financial markets.” James Greig, Head of Supervision at the FMA
Another report, this time by GEO Investing, explains how Chinese nationals rely on Tiger Brokers to convert their Renminbi (China’s currency) into U.S. Dollars and then invest these into foreign markets. This is prohibited in China.
⚡️ THE BOTTOM LINE ⚡️
The Good
Tiger Brokers is growing at a fast clip as it provides the trading tools a new generation of investors require
It mainly differentiates itself with access to numerous markets and low commissions, attracting younger investors to its platform
The trading market is set to boom in China and Southeast Asia as wealth is being built up and the amount of investable assets increases dramatically
The company is expanding in wealthy and developed markets such as Singapore, Australia and New Zealand and is already being used in India, Indonesia and Malaysia despite having no local presence
The Bad
Regulation may be tightened and the financial technology scene may come under scrutiny as China tries to retain the reigns of its economy
Tiger Brokers is smaller than its rapidly growing competitors, Futu Holdings Limited and WeBull Financial LLC
Tiger Brokers could come under increasing local scrutiny and received warnings from New Zealand’s Financial Markets Authority
Sources and credits
Investor presentation
Company website
Financial Times
The Wall Street Journal
Boston Consulting Group
Bain & Company
UBS
Global Times
Tech In Asia
The Asean Post
KPMG
OECD
The Business Times
Business Insider
GEO Investing
FMA
Disclaimer
Please note that this article does not constitute investment advice in any form. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.
Disclosures
The author has no business relationship with any company mentioned in this article and the author is not receiving any form of compensation for this article other than contributions from paying subscribers.