Mainboard-listed iFast Corporation AIY may be known to investors as a wealth management platform, but the company’s near-term upside appears to increasingly hinge on the trajectory of its UK-licensed iFast Global Bank (IGB), as volatile markets and delays in the group’s Hong Kong operations offer little relief.
Formerly known as BFC Bank, iFast brought the bank into its fold in March 2022, acquiring an 85% stake for some $74 million, financed by a $105 million placement. iFast chief executive officer Lim Chung Chun had warned of “initial start-up losses” last year, and IGB posted a $5.04 million loss for FY2022 ended December, weighing on iFast’s full-year net profit, which plunged 79.0% y-o-y to $6.42 million.
Although start-up losses from IGB narrowed q-o-q to $1.7 million in 1QFY2023, iFast management targets a breakeven only in FY2024. In 1QFY2023 ended March, iFast recorded patmi of $2.98 million, up 129.7% q-o-q but down 48.1% y-o-y. IGB aside, the group’s non-banking operations recorded patmi of $4.68 million for the quarter, down 18.5% y-o-y.
“The group’s performance in 1QFY2023 was worse than in 1QFY2022, partly because of the start-up losses in iFast Global Bank,” says the company on April 25. Inclusive of IGB, iFast’s total net revenue increased 8.6% y-o-y to $31.01 million in 1QFY2023. Exclusive of IGB, however, iFast’s net revenue was down 1.7% y-o-y to $28.07 million during the quarter.
iFast’s assets under administration (AUA) fell 2.6% y-o-y to $18.14 billion as at March 31, but up 4.2% q-o-q, as its key Singapore market saw opportunities with stronger equity and bond market performance during the quarter.
See also: Analysts downbeat on iFast after 1QFY2023 reveals Hong Kong, UK profit drag
“While markets continued to be volatile in 1QFY2023, net inflows of client assets remained positive, coming in at $329 million,” says iFast. “The group sees net inflows of client assets as the most important indicator of its long-term growth potential.”
At 1.02 cents, earnings per share for the latest quarter was down from 1.97 cents this time last year. That said, iFast has proposed a dividend per share of 1 cent, unchanged y-o-y.
iFast’s 1QFY2023 patmi came in 42% below CGS-CIMB Research analyst Andrea Choong’s forecast.
See also: iFast reports 48% y-o-y drop in 1QFY2023 earnings, eyes 'high growth' period ahead
Says Choong: “The miss was due to a weaker-than-expected recovery of iFast’s wealth management platform business, although this was partly offset by stronger interest income from its banking operations from deposits with the central bank and income from bonds.”
The risk-off sentiment is expected to persist, writes Choong in an April 27 note, keeping its “reduce” on the stock with an unchanged target price of $3.50.
Meanwhile, UOB Kay Hian Research analysts Heidi Mo and John Cheong are maintaining a “hold” on iFast in an April 27 note with a lower target price of $4.81 from $5.06.
Coming between the two calls is DBS Group Research analyst Ling Lee Keng, who reiterates that iFast is “fully valued”. However, Ling trimmed her target price in an April 26 note to $3.92 from $3.98, noting a pause in iFast’s operating leverage. “With higher costs and slower revenue growth, the group is presently not able to enjoy operating leverage. We project the group to achieve operating leverage benefits only in 2024 and beyond,” says Ling.
Digital personal banking debut
iFast announced IGB’s digital personal banking (DPB) offering on April 24, a day before the release of its financial results for 1QFY2023 ended March and two days before its annual general meeting (AGM). With the launch of the online portal and mobile application, customers from outside the UK can now open an IGB bank account and access deposit services.
The DPB platform currently offers a basic bank account, along with fixed-term and notice deposit products. IGB offers digital personal banking customers multi-currency deposits in six currencies: the British pound, US dollar, euro, Hong Kong dollar, Singapore dollar and renminbi. IGB also offers notice deposits in the US dollar, British pound and Hong Kong dollar to users in Asia.
See also: iFast's UK bank launches digital personal banking, open to users worldwide
While customers are required to withdraw their fixed-term deposits at maturity, notice deposits allow for withdrawal at any time by giving advance notice, “typically 95 days”, according to IGB. Additionally, interest on fixed-term deposits is paid upon maturity, while interest on notice deposits is paid daily.
Notably, iFast investment account holders in Asia can take advantage of the “Transfer within iFast group” feature to move funds between the UK and Asia “instantly and at no cost”, says iFast.
IGB is authorised by the Prudential Regulation Authority (PRA) and regulated by both the PRA and Financial Conduct Authority (FCA). IGB is also a member of the Financial Services Compensation Scheme (FSCS), where eligible deposits are protected up to GBP85,000 ($142,731.78) per customer.
This adds to IGB’s digital transaction banking platform, launched in December 2022, and the bank’s remittance business.
IGB’s EzRemit is the bank’s “core business and key income contributor”, says iFast. The remittance service offers money transfer and foreign exchange services for customers in over 20 currencies, says Muj Malik, CEO of IGB. “The digital personal banking platform will provide individual consumers around the world with the opportunity to access personal digital banking services in the UK, a trusted jurisdiction and major global financial centre, be it for their personal or business needs.”
Aside, the accompanying press release also revealed iFast’s user count: “Over 700,000 iFast Corp clients across various markets, including Singapore and Hong Kong, will be able to open IGB accounts to tap into the DPB platform capabilities available on the iFast fintech ecosystem.”
Shareholder questions
In time, iFast aims for its banking operations to generate a 1.5% net interest margin (NIM), lower than the local banks’ current 2% NIM, given its focus on executing a “lower-risk strategy”.
According to iFast’s CEO, IGB has its sights set on launching debit cards next, though this will not be a first for the group; iFast’s unit trust trading platform FSMOne launched a debit card in August 2022.
See also: iFast's disappointing FY2022 to give way to UK, Hong Kong profitability
Recent chatter surrounding IGB has pulled focus away from iFast’s Hong Kong operations. In January, iFast announced an eight-month delay for its ePension project, owing to a labour shortage faced by overall contractor PCCW Solutions, the communication technology firm owned by Richard Li, son of tycoon Li Ka Shing.
As the largest public retirement scheme in Hong Kong with some 4.5 million members, the fund manages some HK$1.05 trillion ($178.7 billion) of assets. iFast is a subcontractor appointed to help build the platform, which aims to more than halve administrative costs.
One quarter later, iFast’s management has no new updates, reiterating that the ePension project is progressing and its portion of project fees should commence in 4QFY2023.
CGS-CIMB’s Choong, in turn, maintains that FY2024 is a more realistic timeline.
In addition, a component of the project is related to the Occupational Retirement Scheme (ORSO), where fees are dependent on AUA.
Choong warns that this will be subject to market volatility. “We maintain our projections (40%- 50% discount to its guidance) pending visibility on achieving these goals. Clarity on its administration of ORSO could be a re-rating catalyst.”
iFast is aiming for its overall Hong Kong business to achieve a profit before tax of at least HK$100 million in 2023, and exceed HK$250 million in 2024 and HK$500 million in 2025. iFast’s Hong Kong business recorded a profit of $8.07 million in FY2022 and $2.29 million in 1QFY2023.
Meanwhile, iFast’s operations in China continued posting a loss in 1QFY2023 of $1.75 million. This follows years of deepening losses, from $3.61 million in FY2016 to $7.12 million in FY2022.
The protracted struggle prompted at least one shareholder question at iFast’s AGM on April 26. In response, Lim acknowledged that there has not been a profitable year in that market.
iFast’s wholly-owned China subsidiary was awarded a funds distributor licence in October 2015 and the group soft-launched operations there in March 2016.
“China has run behind our plans,” says Lim. “Two years ago, the momentum was building up quite well but unfortunately in the past one and half years, things have taken a turn for the worse because the overall market condition has been very tough.”
Indeed, net revenue for iFast’s China operations more than quadrupled between FY2019 and FY2021, reaching a peak of $2.55 million that year before softening to $1.77 million in FY2022. In 1QFY2023, iFast China logged net revenue of $0.44 million.
iFast’s management says 1QFY2023 was the first full quarter of operations following a change in Covid-19 policies in China. “Net revenue grew 31.2% q-o-q on the back of increased business activities; losses for iFast China narrowed q-o-q by 4.4%. The management team continues to explore and implement viable cost management measures, with the aim of reducing losses in the China business, though the road to full recovery may be bumpy and uncertain given the global geopolitical climate.”
Things have not gone exactly according to plan there, says Lim, “[but] In the meantime, we are continuing our efforts to grow the China business [while] ensuring that the overall cost doesn’t get too high … We still believe it is a market that will give us tremendous potential.”
Photos: iFast
