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 investment. 

Business Overview

Source: iFAST 2018 Annual Report

There are three main segments in iFAST.

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 clients.

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 Administration (AUA)

iFAST Group AUA. Source: FY2019 Results Presentation

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.

Recurring and 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 Presentation

Other Financials

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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 Presentation

Dividends

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 last year.

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.

Business Outlook

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.

Weakness

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.

Valuations

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 times.

Its dividend yield would be approximately 3.1%.

Conclusion

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

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