Preliminary data show strong beat; Upgrade to BUY

• Follow-on offering of ~US$90mn to strengthen capital and business operations.

• 3Q24 preliminary revenue and key operating data beat, helped by increasing trading volume and market activity.

• Upgrade to BUY; raise TP to US$7.58 (20.0x 2025E P/E).

Follow-on offering to raise ~US$90mn in capital. On Oct 22, 2024, TIGR announced a follow-on offering of 15mn ADS with up to 2.25mn ADS in an over-allotment option, priced at US$6.25 and resulting in around 11% share dilution. Net proceeds are around US$90mn, with which management plans to strengthen its capital base and business development initiatives. Given its recent share price rally, TIGR took the opportunity to replenish its capital. We think this could allow TIGR to: 1) expand its capital-heavy business, for which MFSL was growing fast in 1H24 (up 46% HoH); and 2) support its overseas expansion, especially given the recent sentiment boost in the Hong Kong market, which TIGR entered in 2023 and where it had gained only 22.2K paying clients as of 1H24 (vs Futu’s 638K). TIGR might spend more on marketing expenses in Hong Kong to acquire new paying clients amid renewed investor interest, in our view.

3Q24 preliminary data indicate a strong beat. TIGR’s preliminary 3Q24 selected financial and operating data was strong (all above our estimates) helped by an increase in trading volume and market activity, as well as the high interest rate environment. 3Q24 revenue is guided at US$96mn-US$103mn, up 10-18% QoQ, and commission income at US$39mn-US$42mn, up 14%-23% QoQ. In terms of operating metrics, new paying clients are guided to reach 49.2K-51.6K, up 0.6%-5.5% QoQ, while total account balance is guided to be US$39bn-41.2bn, up 2%-8% QoQ; trading volume is guided at US$157bnUS$165bn (+48%-56% QoQ), with that of stocks up 19%-25%. TIGR noted strong continued momentum in the first two weeks of Oct. We think the better-than expected preliminary results are helped by the increase in trading velocity in US stocks amid market fluctuations and the rally in HK stocks since the second half of Sep. With good cost control, we now forecast TIGR’s 3Q24E non-GAAP profit at US$20.2mn (+26% YoY, +289% QoQ).

Upgrade to BUY; raise TP to US$7.58. We revise up our forecasts for 2024E/ 25E/ 26E non-GAAP net income by 25%/ 31%/ 31% as we: 1) increase commission income forecasts by 16-18% and 2) raise interest income estimates by 2-10% due to higher MFSL balance, offsetting 3) our 2-5% higher forecasts for opex. We roll over our valuation base to 2025E (from 2024E-25E) and assign a P/E target of 20.0x (previously 13.5x), in line with TIGR’s past three years’ average 12-month forward P/E. Following our earnings revisions, we raise our target price to US$7.58 from US$4.16. With its total paying clients surpassing 1mn and additional capital to support the MFSL business, we believe TIGR should start to show operating leverage with improving net margin in 2024E-26E. Thus, we upgrade to BUY. Key risks: weak stock market sentiment, slower-than-expected market expansion, intensifying competition, lower-than expected MFSL demand and tighter regulations.

Estimate revisions

Following TIGR’s preliminary announcement, we revise up our 3Q24E and 4Q24E non-GAAP net income estimates by 41%/ 47% mainly helped by a 23%/ 38% increase in commission income forecasts. In addition, we revise up our forecasts for 2024E/ 25E/ 26E non-GAAP net income by 25%/ 31%/ 31% as we: 1) increase commission income forecasts by 16-18% to reflect our higher stock trading volume and velocity expectations, and 2) raise interest income estimates by 2-10% due to higher MFSL balance, offsetting 3) our 2-5% higher forecasts for opex. We also reflect the 11% share dilution from the recent follow-on offering.

Valuation

Upgrade to BUY and raise target price to US$7.58. We roll forward our valuation base to 2025E from 2024E-25E and assign a P/E target of 20.0x (previously 13.5x), in line with TIGR’s past three years’ average 12-month forward P/E. Following our earnings revisions, we raise our target price to US$7.58 from US$4.16, implying 1.25x PEG. We raise our target multiple to reflect the recent market rally and consider our valuation well supported by TIGR’s 2024E-26E earnings CAGR of 16.1%. With its total paying clients having reached 1mn and additional capital to support its MFSL business, we believe TIGR should start to show operating leverage with improving net margin in 2024E-26E. Thus, we upgrade to BUY.

Potential share price catalysts include: 1) a higher-than-expected number of new paying customers; 2) an increase in retail client assets and; 3) increasing stock and derivatives trading volume driving up commission income.

Using paying customer lifetime value (CLV) as a cross-check for TIGR’s valuation, we calculate its fair value at US$17.55 – assuming 1,237K paying customers in 4Q25E, a 2% churn rate per quarter, ARPU of US$320 per quarter, gross margin of 74%, customer acquisition cost (CAC) per paying client of US$223, and a discount rate of 13%. As CAC would be a one-time cost, the number of paying customers, ARPU, churn rate and gross margin are the key variables affecting TIGR’s valuation. The difference between the derived fair value and our target price of US$7.58 is that we do not consider operating costs in this approach. Since TIGR has not yet reached a level to benefit from economies of scale, any decline in revenue with less room to save on operating costs would weigh on its earnings.