Tiger Brokers focuses on underwriting IPOs, improving investor education
Financial markets have been subjected to major events over the past few years, ranging from the pandemic to an inflationary economic environment amid unprecedented US rate hikes and soon, the start of interest rate cuts. But online brokerage Tiger Brokers has pivoted along with these changes just fine.
Over the past five years, the Xiaomibacked firm has expanded from brokerage services to managing employee stock ownership plans (ESOP). The firm even claims to have ventured into investment banking, via underwriting IPOs.
Listed on Nasdaq as UP Fintech Holding, the firm underwrote four US and Hong Kong IPOs in 3QFY2023 ended Sept 30, 2023, including the Japanese blockchain firm Earlyworks, which debuted on Nasdaq in July 2023. This is in addition to the seven US listings the firm underwrote in 1QFY2023 and another seven in US and Hong Kong the following quarter.
Wu Tianhua, founder of Tiger Brokers, tells The Edge Singapore in an interview that the broader suite of services forms a “virtuous, complementary service offering” to its core broking business.
Bolstering subscriptions is particularly important in today’s poor market conditions. In some cases, the company finds itself in the position of sole bookrunner, such as in the listing of Earlyworks.
“When the market is bad, I am perhaps the number two investment bank [underwriting the listing],” says Wu in Mandarin. “But along the way, the US or European investment banks may ditch the listing.”
When the market is doing better, Tiger can help with the company’s trading momentum, he adds, such as offering long-only funds from family offices and other investors. “[An] IPO is not just an IPO, but a form of branding for the companies. We create value-add for smaller companies.”
This time last year, Tiger Brokers boasted that it underwrote the third-highest number of US listings among global brokerages in 2022, at 19 IPOs. According to the firm, it beat names like Bank of America, Citigroup, Goldman Sachs and JP Morgan.
Tiger Brokers says it helped raise some US$1.49 billion ($2 billion) in total that year, placing fourth behind Goldman Sachs, JP Morgan and Cantor Fitzgerald.
Wu thinks the company is more suited to help companies than many of its peers. “For us, we position ourselves as a partner to entrepreneurs who are trying to IPO and raise funds. We understand the pain points of entrepreneurs; we can help them grow.”
The market environment for new listings is “not as hot” in Hong Kong, notes Wu, who is based in Beijing. “[But] we can help provide more accessible trading in distribution of the IPO shares [and] help create more trading opportunities.”
He adds: “We are not afraid of competition. We see more opportunities to provide value-added [features, and] we innovate constantly.”
Financial results
Even as the company broadens its range of services, commissions from trades made on its Tiger Trade platform still form a significant portion of the company’s revenue. According to UP Fintech’s 3QFY2023 results released on Nov 27, 2023, total revenue for the quarter grew 26.6% y-o-y to US$70.1 million. Commissions of $23.2 million, though 5.4% lower y-o-y, made up a third of the quarter’s revenue.
Other revenues, meanwhile, came in 35.1% higher y-o-y, at US$5.4 million, “primarily due to the increase in IPO subscription incomes”.
These segments were bested by interest income, which surged 54.4% y-o-y to US$38.3 million in 3QFY2023, nearly 55% of total revenue for the quarter. The company attributed this to an increase in margin financing and securities lending activities.
As of Feb 26, Tiger Brokers charges a flat rate of 5.3% for US dollar and 4.8% for Singapore dollar financing. The annual interest rate for Hong Kong dollar financing is higher, at between 6.634% and 7.634%, depending on the amount.
Tiger Brokers also offers financing in Australian dollars, Euros, British pounds, Japanese yen and offshore renminbi.
For the quarter, net income attributable to ordinary shareholders of UP Fintech was US$13.2 million, more than four times the US$3.3 million booked in 3QFY2022.
For the nine months ended Sept 30, 2023, or 9MFY2023, UP Fintech booked a net income of nearly $34.4 million, up from a net loss of some US$3.4 million in 9MFY2022.
While the company’s 4QFY2023 results will only be released in March, these trends should hold steady into the final quarter, as global investors’ interest in the US market continues unabated.
“We can tell that [our] global users love US stocks,” says Wu. “Wellknown companies [like] Apple and Tesla have popular products of their own [and] rising trading volume.” According to DBS Group Research, more than 90% of Tiger’s trading volume came from the US market as at 3QFY2023.
As of Sept 30, 2023, Tiger Brokers has logged more than 2.1 million customer accounts, of which 865,500 are funded. According to the firm’s latest earnings call, roughly 55% of its clients are from Singapore, along with 15% from the US, 15% from Hong Kong and 15% from Australia and New Zealand.
In 2QFY2023, about 45% of newly-funded accounts came from Singapore. The average net asset inflows of new Singapore clients in 3QFY2023 was approximately US$10,000.
Tiger Brokers claims its customers represent one in every three adult residents in Singapore. As the firm’s international headquarters, Singapore should continue to sport Tiger Brokers’ largest customer base and growth, says Wu. “Since entering Singapore in 2020, we feel that here in Singapore, we’ve built a very useful and competitive product… Growth remains fast, thanks to our one-stop platform.”
A new house
That said, Tiger Brokers faces “tough, non-stop competition” in markets like Hong Kong, says Wu. “This is an established industry, after all, with hundreds of brokers.”
There, Wu thinks his company is “more competitive in pricing” compared to peers. Tiger Brokers’ headline fees for trading US stocks is 0.5 US cents per share, with a minimum fee of US$1 per order. Commission is waived for fractional trading, and the firm charges a platform fee of 1% of trade value instead, capped at US$1.
Tiger Brokers has also had to pull out of mainland China. Along with competitor Futu Holdings, which operates the online brokerage Moomoo, the firm removed its Tiger Trade app from the country in mid-2023 after the China Securities Regulatory Commission (CSRC) introduced new rules on capital outflows in December 2022. “We have kept open communication with the CSRC and we stick to the rules,” says Wu.
Still, the firm has an advantage in its strong backers. It counts US brokerage Interactive Brokers, Chinese tech giant Xiaomi and renowned investor Jim Rogers among its investors.
Xiaomi invested in the company around a decade ago, says Wu, who stresses that the companies are run independently. Xiaomi is both a shareholder and a customer of Tiger Brokers, with the latter providing ESOP services in dozens of countries where Xiaomi operates. As of September 2023, UP Fintech served 505 ESOP clients.
Tiger Brokers “stands on the shoulders” of Xiaomi, says Wu. “They are an international company; they share their experiences of entering markets and doing business overseas.”
Wu thinks his company’s other competitive advantage is being mobile-first, when long-time incumbents in the space are still figuring out how to move online. “We don’t have historical baggage; we built a new house from scratch. We didn’t have to renovate a decades-old apartment.”
Tiger Brokers’ relatively lean model lets it introduce features like TigerGPT, an AI-powered chatbot launched in August 2023 that Wu refers to as “a little butler or assistant”.
“For example, investors who want to trade Tesla’s shares may want to find out the company’s forward P/E. On a traditional online platform, they will click on Tesla’s stock details, but with TigerGPT, they can ask: ‘What’s Tesla’s forward P/E?’ and find out the answer right away.”
AI has created an enriched, natural interaction with users, says Wu, who feels a responsibility to improve investor education, as many of Tiger Trade’s users are new to investing. “We want to let them learn more and develop [their investing skills]. That’s why we are here.”
Space to grow
Indeed, Tiger Brokers saw net asset inflows of over US$1.5 billion in 3QFY2023, bringing total account balance to US$18.9 billion, up 9.3% q-o-q and 45.7% y-o-y. Why are investors so bullish?
With the expected interest rate downcycle, investors are favourable towards equities, says Wu. They are putting their money into emerging tech stocks in semiconductor firms, AI, electric vehicle names and established companies like Microsoft. “All these can bring about new trading themes and attract eyeballs.”
Users can also trade derivatives and ETFs on the platform, notes Wu. “We hope to let users with different trading patterns and philosophies trade on our platforms.”
UP Fintech is eyeing more institutional products and customers in the first half of this year. These include family offices and hedge funds, says Wu, who sees “lots of space and pain points to address”.
DBS Group Research, for one, is similarly bullish about UP Fintech as a stock. The latest research note by analysts Ken Shih and Edmond Fok in Hong Kong keeps UP Fintech at “buy” with a target price of US$6.20.
In the note from Nov 28, 2023, Shih and Fok see three structural drivers for Tiger Brokers to improve its profitability. “Consistent net asset inflows to boost its scale despite market volatility, self-clearing migration to drive down clearing costs and improving client acquisition efficiency as overseas market operations mature.”
To factor in “robust client asset inflows” seen in 9M2023, the DBS analysts revised UP Fintech’s FY2023 earnings 32% higher. This brings their forecast earnings per share to 26 US cents for FY2023, along with a P/E forecast of 17.5x.
More broadly, Shih and Fok favour China online brokers like UP Fintech and Futu for their substantial US exposure (at more than 70% of trading volumes), limited China drag and attractive valuations.
According to a Feb 6 note, the DBS analysts believe M&A and IPO volume should rebound this year from a low base, in view of potential rate cuts, improved sentiment and record-high private equity dry powder. “The global frenzy towards the Magnificent Seven stocks should likely continue, which would also benefit China online brokers that connect global retail investors with US stock trading.”