Contrarian Capital Management acquired 302,451 Futu Holdings shares in Q1 for an estimated $47 million. The position has lost nearly 25% after Chinese regulators proposed a $253 million penalty against the brokerage.
Back
Contrarian Capital's $47M Futu bet loses 25% after $253M penalty
Contrarian Capital bought 302,451 Futu shares in Q1, a $47 million bet that lost nearly 25% after a $253 million regulatory penalty.
"The charge does not impact our business fundamentals or financial stability," Futu management said, emphasizing the company remains focused on international expansion.
Chinese regulators proposed penalties totaling roughly RMB1.85 billion ($253 million) related to licensing issues. The expense pushed first-quarter net income down 61% year over year to $106 million, even as revenue climbed 25% to $747.7 million. The SEC filing dated May 14 showed the position represented 11.6% of Contrarian Capital's 13F reportable AUM as of March 31, making Futu its third-largest holding behind JetBlue Airways and Gerdau.
Operationally, the business continued to expand. Futu grew funded accounts 34% year over year to 3.6 million, increased client assets 47%, and generated record trading volume of $530 billion in the first quarter. Gross profit rose 29% to $610 million, with the gross margin near 82%. The company generates revenue primarily through commissions on securities and derivatives trading, margin lending, and distribution of financial products via its Futubull and Moomoo platforms.
Futu shares closed at $104.07 on Friday, up just 2% over the past year compared with the S&P 500's 28% gain. The stock trades at roughly 10 times trailing earnings, based on $1.45 billion in net income over the past 12 months. The market capitalization stands at $15 billion.
The decline puts Futu at its lowest since the penalty was announced. If the regulatory overhang fades, Contrarian's timing could prove prescient, but if scrutiny intensifies, the stock's recent decline may prove justified. Investors will watch for any resolution of the regulatory matter, which could determine whether the stock recovers or extends its losses.
This article is for informational purposes only and does not constitute investment advice.
