Key insights
- Morgan Stanley reiterates Overweight rating on Futu despite new Chinese regulations requiring closure of mainland client accounts within two years. Mainland clients represent a significant portion of Futu's revenue and profit. The CSRC will also confiscate gains and issue fines related to pre-2022 mainland client revenue. While Futu's recent earnings beat expectations, regulatory headwinds create uncertainty, potentially impacting US-listed shares.
Investing.com - Morgan Stanley reiterated an Overweight rating and $225.00 price target on Futu Holdings Limited (NASDAQ:FUTU) following new regulatory requirements from China’s securities regulator. The stock currently trades at $123.86, down 8% over the past week and 23% year-to-date, though it maintains a low P/E ratio of 12.1 relative to its near-term earnings growth.
The CSRC issued a joint notice with other departments requiring cross-border brokers to close existing mainland client accounts within two years and pay fines of undisclosed amounts. Mainland customers currently account for less than 20% of Futu’s total assets.
Under the new requirements, mainland clients can only sell holdings and withdraw funds during the two-year grace period. Mainland customers represent approximately 13% of Futu’s total client number and a high-teen percentage of total client assets, according to the firm.
Morgan Stanley estimates mainland clients contributed roughly 20% of Futu’s revenue and 20-30% of its profit in recent quarters. The new regulatory requirement is expected to reduce mainland client exposure to near zero within two years.
The CSRC indicated it will confiscate gains from cross-border brokerage business and issue fines, likely referring to mainland client-related revenue before 2022. Futu has largely stopped adding new mainland clients since 2022. Despite the regulatory headwinds, InvestingPro data suggests the stock appears undervalued at current levels, with a comprehensive Pro Research Report available for deeper analysis.
In other recent news, Futu Holdings Ltd reported strong financial results for the fourth quarter of 2025, exceeding both earnings and revenue expectations. The company achieved an earnings per share (EPS) of 23.92, surpassing the forecast of 21.36 by 11.99%, while revenue reached 6.44 billion HKD, beating expectations of 5.96 billion HKD by 8.05%. Despite these robust results, BofA Securities has adjusted its outlook for Futu, lowering the price target to $223.50 from $235.00, citing a softer first quarter of 2026. BofA anticipates a decline in new funded accounts by 5% quarter-over-quarter and 15% year-over-year. However, total funded accounts are expected to grow by 7% quarter-over-quarter and 34% year-over-year. Meanwhile, Morgan Stanley has maintained an Overweight rating on Futu, with a price target of $225.00, noting that the recent dip in the stock price makes its valuation more attractive. The firm believes the share price will rise in absolute terms over the next 60 days. These developments reflect the mixed sentiment among analysts regarding Futu’s short-term prospects.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.