Can iFAST Corporation Ltd Grow with Singapore’s Wealth Management Industry?
February 28, 2020
iFAST Corporation Ltd (SGX: AIY) is a fast-growing wealth management company that utilises financial tech and digital platforms to help clients invest profitably. The group offers access to over 9,100 investment products such as bonds, unit trusts, exchange-traded funds and insurance plans across five markets: Singapore, Hong Kong, Malaysia, China and India.
iFAST is also leading a consortium comprising Yilion Group and Hande
Group from China, to bid for one of Singapore’s digital wholesale bank license.
iFAST will hold a 65% stake in the digital bank.
In this article, we will take a closer look at iFAST’s business
model, financials and earnings performance to see if it is worth your
Source: iFAST 2018 Annual Report
There are three main segments in
The Business-to-Consumer (B2C)
division offers the FSMOne multi-product transactional platforms to investors
in Singapore, Hong Kong and China who prefer to do their own investment online.
This segment encompasses a wide range of products supported by research content
and customer service.
The Business-to-Business (B2B)
division provides a suite of services including fees collection, operational
support and IT solutions to meet the business needs of financial advisory
firms, financial institutions and banks which advise retail and high net worth
The B2B2C is a new division that
provides innovative and customised fintech solutions that help institutions
improve their fintech capabilities.
iFAST’s earns its revenue
primarily from charging fees for its assets under administration (AUA). The
higher the AUA, the higher its revenue.
Group Assets under
iFAST Group AUA. Source: FY2019
iFAST reported a record AUA of S$10 billion
as of end-2019, having benefited from the group’s efforts in improving the
range and depth of products and services.
The company has delivered strong AUA
increase since it was founded. Except during the Global Financial Crisis in
2008 and 2009 when AUA fell from $4 billion to around $2.5 billion, the amount
has been growing steadily.
Non-Recurring Net Revenue
As iFAST authorise external
institutions to distribute their products, it pays fees to third party sales
personnel. Net revenue aims to capture this by showing revenue earned after
commission and fee paid or payable to third party financial advisers.
Net revenue is broken down into
recurring and non-recurring. Sources of recurring net revenue include various
wealth management fees such as trailer fees and wrap fees, net interest income
and IT maintenance fees. Non-recurring net revenue covers transaction fees from
various product, forex conversion fees and insurance commission.
Recurring revenue accounts for
about 80% of iFAST revenue. This is favourable as recurring revenue should
remain stable during economic uncertainties.
Source: FY2019 Results
The table shows that iFAST had
been able to grow its revenue from $85 million to $125 million in the past five
years. Net revenue showed a similar increasing trend.
However, the same can’t be said
for its profit before tax, which has been falling in the past two years. This
reflects the company’s capital investment in the development and enhancement of
its digital platform and capabilities.
Source: FY2019 Results Presentation
Nevertheless, we see a healthy
trend of increasing operating cash flow from iFAST in the past three years
which rose from $13.2 million to $19.3 million. With capital expenditure
consistently lesser than operating cash flow, this signifies that iFAST has
been able to generate free cash flow throughout this period. A good sign.
Source: FY2019 Results
Management has declared a final dividend of 0.90 cents per share,
thus bring iFAST full-year dividend to $3.15 cents. This is the same amount as
In the past five years, iFAST dividend had increased from 2.79 cents
to 3.15 cents alongside the rise in net income. Management seems generous to
share the fruits of business growth with retail investors.
Management stated several key
goals for 2020.
iFAST intends to continue focusing
on scaling up its business leveraging its fintech ecosystem. Owing to the
group’s efforts in strengthening its fintech capabilities in the past few
years, iFAST’s integrated wealth management platform is now well-established,
powered by better technology and user experience. This would enable the group
to leverage the wealth management sector in Asia, that is expected to grow to
US29.6 trillion worth of assets in 2025.
Concurrently, management expects
the pact of operating expenses increases to slow down in 2020 to the range of
6.8% to 9.5% year-on-year, compared to a double-digit percentage increase in
past years. This is due to much of the fintech system development expenditure
already incurred. This bodes well for the company as the margin is expected to
improve, delivering more returns to shareholders.
Another growth area would be a
digital bank license. iFAST finds that the global mass affluent populations are
not well served, even while Singapore has established itself as a leading
wealth management centre globally. It aims to fill this opportunity, by
integrating its existing wealth management fintech platform into the digital
bank’s product offerings to acquire global mass affluent customers.
From a macro perspective, Asia’s
wealth management industry is set for long term growth. However, it is an
industry that is very sensitive to economic turbulence. Any signs of the economic
downturn could send foreign funds flowing out of this region into their home
country, depressing asset price which exacerbates further funds outflow. This
would adversely affect iFAST’s AUA, impacting its revenue.
The company investment performance
also largely depends on the performance of various asset classes, which can often
be difficult to forecast. Hence, iFAST can’t be said to be a stable dividend
stock and may be unsuitable for investors who are looking for income.
With a share price of $1.02 as of 20 Feb and basic earnings per share
of 3.55 cents in FY2019, iFAST valuation stands at Price Earnings Ratio of 28.7
Its dividend yield would be approximately 3.1%.
iFAST has shown some impressive growth in the past few years,
leveraging its digital platforms and fintech to grow its AUA that give rise to
increasing revenue. As a wealth management firm, it is an asset-light business
that relies on scale and information technology, thus requiring less capital
expenditure over the long run.
However, its key weakness is that wealth management is a volatile
business, so when the economic downturn occurs, iFAST will be hit especially
hard. Investors have to be mentally prepared for that.
Thus, if you believe that iFAST has the right management and
capability to excel in the competitive wealth management landscape in this
region, this could be a stock to keep for future capital growth
CS Jacky is a Remisier and Financial Adviser with Phillip Securities Pte Ltd. Graduated with a Bachelor in Business Administration (Finance), he has been investing in the stock market since 2010. He identifies companies with good prospect trading at a low valuation using a unique blend of fundamental, technical, and portfolio analysis. He also holds REITs and dividend paying shares. He holds regular seminar to share about market updates, investment insights of specific stocks in his watch list, and overall wealth management for retail investors. He is the owner-blogger of 'CS Jacky - 360 Wealth Management' and a guest writer for Value Invest Asia.