FUTU - Futu Holdings stock slips after J.P. Morgan downgrades to Neutral

2023-05-18 08:58:43 ET

Futu Holdings ( NASDAQ: FUTU ) stock declined 2.5% in Thursday premarket trading after J.P. Morgan analyst Katherine Lei downgraded the online stock-trading platform to Neutral from Overweight following the company's announcement that it will remove the app from Mainland China app markets.

Lei said the stock's 4.4% decline on Tuesday hasn't factored in the potential decline in revenue from existing Mainland clients. Existing clients can continue to use the app, but can't update the app through app stores. Rather they would have to downloan the app through Futu's ( FUTU ) Hong Kong website or other app download websites. "Thus, we see this as an effective ban but not an absolute ban on onshore usage of the Futu app," she wrote in a note to clients.

The analyst estimates that Mainland clients make up ~30% of Futu's ( FUTU ) clients and ~40% of its revenue.

The app removal "suggests regulatory treatment of existing onshore clients may not be as dovish as we previously thought."

In addition, a trend for declining trading activity in the U.S. and Hong Kong could pose downside risk to the company's earnings. That view could be revisited if the company can show that its growth in Hong Kong and overseas markets, such as U.S., Australia, and Japan is able to offset the lower participation from China Mainland clients.

Lei's Neutral rating on Futu ( FUTU ) contrasts with the SA Quant rating of Buy and the average Wall Street rating of Buy.

More on Futu:

• Futu Holdings: Still a Speculative Buy
• Futu Profits Charge Ahead on Soaring Interest Income, Cost Savings
• Futu down despite Q4 beat as client acquisition slows in US

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