“Weekly Options TradeS” Recommendations
Week Beginning Monday, mARCH 15, 2021

The Major Catalysts for This Trade.....

Earnings Report.....

Shares of Hong Kong-based digital broker and wealth management platform Futu Holdings rose more than 10% at one point Tuesday morning after the company reported earnings. But, the shares turned lower to close down 4.1% at 142.22 on the day.

Futu Holdings reported skyrocketing earnings growth that topped expectations.

Futu earnings exploded 880% to 49 cents a share, beating expectations by 8 cents. Revenue swelled 283% to $153 million, also beating.

The brokerage added 98,632 paying clients on a net basis in Q4, representing a 161% growth rate, for a year-end total of 516,721. Futu CEO Leaf Hua Li said "more than half of new clients were from Hong Kong and overseas."

Total client assets surged 227% year over year to $36.7 million in the fourth quarter.

It has a three-year EPS growth rate of 111% and a three-year sales growth rate of 96%.

For 2020, Futu's revenue ballooned 212% year-over-year to $427 million. Total gross profit rocketed 235% to $337.3 million. Total costs were $89.8 million, an increase of 147% from 2019.

The company says it "primarily serves the emerging affluent Chinese population."

"As we further enhanced our capital base, we are able to support a larger margin financing balance, ramp up our marketing efforts in international markets, and further invest into our technology infrastructure," Futu's CFO Arthur Yu Chen said in a statement.

With such a great report, then a sizable pullback, prepare for a movement back upwards.

Analysts Positivity.....

Citigroup reiterated their buy rating on shares of Futu in a research note released on Wednesday.

Other research analysts have also recently issued reports about the stock.....

• Morgan Stanley initiated coverage on shares of Futu in a research report on Tuesday, February 16th. They set an overweight rating and a $253.00 price target for the company.
• Citigroup Inc. 3% Minimum Coupon Principal Protected Based Upon Russell reduced their price objective on shares of Futu from $246.50 to $230.30 and set a buy rating for the company in a research note on Wednesday.
• BOCOM International started coverage on shares of Futu in a research note on Monday, January 18th. They set a buy rating for the company.
• Finally, 86 Research lowered shares of Futu from a buy rating to a hold rating and set a $171.00 price objective for the company in a research note on Monday, February 22nd.

One equities research analyst has rated the stock with a hold rating and four have issued a buy rating to the company’s stock. Futu presently has an average rating of Buy and an average price target of $225.20.

Competitive Advantages.....

Futu has the advantage and technical know-how gained from being one of the first movers to offer completely online-based trading account opening service, charging low fees among the leading players in China. This advantage has allowed them to rapidly improve their technical competence around providing seamless trading, clearing, and risk management, all of which have helped the business to excel.

Futu has a social network collaboration platform called NiuNiu Community. The platform has news, research data, short-videos, recorded lessons, chat rooms, and live broadcast, helping users find investing ideas. The competitive advantage here is that Futu uses the platform to observe user behaviors and identify pain points for users, helping the organization to improve the platform and customer processes which all contribute to greater user satisfaction and increased engagement.

Futu’s customer base and clientele are unique. Futu mostly serves the emerging affluent Chinese population who are around the age of 36. This is the average customer for Futu, affluent because they work in the tech sector in China, which is rapidly growing (about 40% of them). Most importantly, customers love the Futu platform such that they have a <2% churn rate and over 98% annual client retention.

Futu provides FREE market news and stock data. Futu has done an impressive job with attracting users and luring potential investors so that they have more than 7 million active users, similar to the Yahoo Finance brand, well known in America for getting the latest news and information. Futu is similar, but they have the opportunity to convert these users into paying clients who are actively trading.

The Major Catalysts for This Trade.....

Earnings Report.....

LI’s total revenue for the fourth quarter, ended December 31, 2020 came in at $635.54 million, which represents a 65.2% rise sequentially. The company’s non-GAAP net income increased 621.5% sequentially to $17.69 million and gross its profit increased 45.9% sequentially to $111.05 million. However, its non-GAAP loss from operations was  $10.89 million for the fourth quarter and its non-GAAP EPS was t $0.02.

Analysts expect the company’s EPS to remain negative for fiscal 2021. However, a consensus revenue estimate of $688.79 million for the quarter ending June 30, 2021 represents a 128.8% rise year-over-year.

Analysts Positivity.....

China has 1.4 billion people, who are rapidly urbanizing and growing in wealth, and the country is becoming a voracious consumer of sorts of material goods – including cars. As noted above, government mandates in China require that, by 2030, 40% of all automotive sales be in electric vehicles.

Li Auto, founded in 2015, currently boasts one of China’s best-selling EV models, the Li ONE. In 2020, despite the corona virus crisis, Li delivered over 32,000 units, with 14.464 of those deliveries made in Q4. The company reported US$635.5 million in revenues for the quarter, and a gross profit of US$111 million, up 45% year-over-year. The company’s quarterly net loss fell by more than half from Q3 to Q4, to just US$12.1 million, while quarterly free cash flow increased 113% sequentially to US$245.1 million.

The company’s popularity continues to increase, and Li announced on March 2 that it had delivered 2,300 Li ONE models during February. This was a 755% yoy increase, and the company stated that cumulative deliveries of the Li ONE, since its introduction, totaled 41,276 units. The company conducts its sales through 60 retail locations in 47 cities around China, and supports its vehicles with a network of 125 service centers in 90 cities. New models are planned for launch in 2022.

Among the bulls is Needham's analyst Vincent Yu who takes a bullish stance on LI shares.

“We believe the company's unique value proposition, focused strategy, and diligent margin and costs control, make it a quality asset in the growing EV space,” Yu noted.

The analyst added, "We think the lack of charging stations is the main bottleneck for the growth EV markets in China, and Li’s product directly addresses the problem. Li One uses extended-range technology, which allows the vehicle to run on its battery pack that can be charged by a gasoline engine, significantly increases its range (800km) while reducing vehicles' reliance on charging stations. Li's BEV model is set to release in 2023, capturing secular tailwinds from improvements in battery and charging technologies."

To this end, Yu rates LI shares a Buy along with a $37 price target. This figure implies a 42% upside potential for the next 12 months.

Overall, data shows a bullish camp backing this EV player. The ‘Strong Buy’ stock has amassed 6 Buy ratings in the last three months, with just one analyst playing it safe with a Hold. LI is priced at $25.90 and its $40.21 average price target implies a 55% upside from that level in the next year.

Deliveries.....

LI delivered 2,300 Li ONEs in February, which represents a 755% year-over-year increase. Also in February, LI established a new research and development center in Shanghai dedicated to the development of cutting-edge EV technologies. And in January, the company’s Li ONE received a G rating, the highest safety rating per the safety evaluation results published by the China Insurance Automotive Safety Index Management Center.