iFast Q4 net profit surges 917% to S$13.2 million

 

FINANCIAL services company iFast Corporation&rsquo s net profit for the fourth quarter surged 917.1 per cent, on the back of higher revenue, as initial contributions from its ePension division streamed in.

Net profit for the three months ended Dec 31, 2023 climbed to S$13.2 million from S$1.3 million in the year-ago period. On a per share basis, earnings rose to S$0.0446 in Q4 FY2023, from S$0.0044 in Q4 FY2022.

A final dividend of S$0.014 per share was proposed, unchanged from the previous year.

Total revenue for the quarter climbed 69.3 per cent on-year to S$82.2 million amid an increase in assets under administration (AUA).

iFast said its AUA rose 13.8 per cent on-year to a record S$19.8 billion as at end-2023, driven by net inflows of S$2 billion during the year. Net inflows were also positive during the fourth quarter, amounting to S$334 million.

For the full year, net profit increased by 340 per cent on-year to S$28.3 million, on the back of a 22.8 per cent increase in total revenue to S$256.5 million.

&ldquo On an overall basis and barring unforeseen circumstances, the group expects 2024 to see robust growth rates in revenues and profitability compared to 2023.&rdquo

For the fourth quarter, the group&rsquo s non-banking operations saw net revenue increase 94.3 per cent on-year to S$53.9 million, while profit before tax (PBT) increased 335 per cent to S$19.5 million.  Net profit for non-banking operations rose 390.7 per cent year on year in the fourth quarter.

Meanwhile, banking operations saw net revenue rise 59.9 per cent on-year to S$3.3 million.

&ldquo The Digital Personal Banking division has had an encouraging progress since launch in Q2 2023,&rdquo iFast said. &ldquo UK residents accounted for about 30 per cent of the deposits, while the rest comes from residents of over 60 countries from around the world.&rdquo

The group added that its banking arm is expected to post a reduced loss in 2024, and is targeted to break even by the fourth quarter. The banking business is expected to be &ldquo an important growth driver&rdquo from 2025 and beyond.

iFast also said it had achieved its 2023 gross revenue targets for its Hong Kong business that was set in April 2022. Meanwhile, its PBT target in Hong Kong was exceeded, with some HK$139 million (S$23.9 million) of PBT, compared to the target of more than HK$100 million.

The company has maintained its PBT targets of HK$250 million in 2024 and HK$500 million in 2025 for the Hong Kong business. However, it has reduced the gross revenue and net revenue targets.

iFast said its 3-year plan is to make &ldquo solid progress&rdquo as a digital banking and wealth management fintech platform with a &ldquo truly global business model&rdquo accelerate Hong Kong growth and effectively deliver on ePension services and effectively develop fintech services that complement its banking and wealth management platforms.

&ldquo The ePension division in Hong Kong will be an important growth driver in 2024 and 2025, while the overall wealth management platform is expected to continue to show healthy progress,&rdquo iFast said.

Shares of the company fell 1.5 per cent on Wednesday to close at S$7.93, before the results.

 

 

Citi Research has discontinued its coverage of iFast, more than two years after going against consensus calls and issuing &ldquo sell&rdquo on what was then Singapore&rsquo s best-performing stock. 

 

Citi Research analyst Tan Yong Hong&rsquo s last report, from October 2023, maintains the house&rsquo s &ldquo sell&rdquo call and $3.70 target price, reiterating that the wealth management platform&rsquo s underlying core business remains soft. 

 

Tan has also warned of &ldquo high risk&rdquo when trading iFast shares, a label that has stuck since the Mainboard-listed company announced plans to acquire a loss-making UK bank in January 2022.

 

iFast triggered four regulator queries between August 2020 and January 2021 for its share price surges. Citi was the first to sound alarm bells for iFast&rsquo s share price, which had swelled from $1 in January 2020 to $10 in September 2021.

 

In July 2021, iFast reported earnings of $7.02 million for 2QFY2021, a drop of 20% q-o-q and the first quarterly dip since 1QFY2019. 

 

But its share price moved higher, reaching a 52-week high of $10.10 prior to its 3QFY2021 results in October. But iFast&rsquo s 3QFY2021 results missed consensus estimates due to slowing assets under administration (AUA) growth momentum and ongoing pressure on its platform margins.

 

Then, Tan&rsquo s target price for iFast was still $7.50, even with a &ldquo sell&rdquo call. He warned that iFast&rsquo s share price had risen more than 800% since mid-2020. 

 

He also believed the market was pricing in too much upside from iFast&rsquo s involvement in Hong Kong&rsquo s mandatory ePension platform project. &ldquo We estimate the market has priced in about $3 upside from this project, but our bottom-up approach suggests just 90 cents.&rdquo

 

2022

When iFast announced plans to raise $75 million and acquire the loss-making BFC Bank in January 2022, Citi baulked, citing high risk due to share price volatility. &ldquo The acquisition will be immediately dilutive to earnings per share (EPS), as BFC Bank is loss-making and fundraising via debt/capital raise is required.&rdquo

 

A week later, iFast Corporation raised $105 million via an oversubscribed placement of 14 million new ordinary shares to institutional and accredited investors. As expected, its share price faltered, falling below $7 for the first time since May 2021. 

 

On Jan 27, 2022, Citi trimmed their target price to $6.20, which it maintained even as iFast&rsquo s FY2021 patmi missed consensus estimates the following month. 

 

Citi continued cutting its target price on iFast, reaching $4.20 in April 2022. The company&rsquo s core business is valued at $3.10 per share, and its Hong Kong eMPF platform is valued at $1.10, said Tan.

 

Shares in iFast fell some 6% after its 1QFY2022 earnings were released. The counter had reached $5 on Apr 26, 2022.

 

Citi lowered its share price forecast yet again in July 2022 to $3.80, ahead of iFast&rsquo s 1HFY2022 results. &ldquo We continue to be a seller of iFast given: rising competition in the online brokerage [space] leading to pressure on platform margins and slowing AUA growth momentum near-term earnings uncertainty after acquiring the loss-making BFC Bank [in the UK] and further mergers and acquisitions (M& A), in particular, funded via the equity market and its associated execution risks.&rdquo

 

Citi analysts added: &ldquo While we are fundamentally positive on the wealth management outlook and iFast&rsquo s business model as a fintech disruptor, we think share prices are fully valued.&rdquo

 

iFast sank into the red in 2QFY2022 with a $2.69 million net loss, owing to a one-off $5.2 million impairment when associate company iFast India Holdings decided to exit its onshore platform service business. 

 

That said, the company returned to the black the following quarter. Even so, Tan kept his &ldquo sell&rdquo call and $3.80 fair value. 

 

2023

 

In January 2023, iFast announced an eight-month delay for the Hong Kong eMPF project, owing to a labour shortage. This caused CGS-CIMB Research&rsquo s Andrea Choong to downgrade the stock to &ldquo reduce&rdquo with a lower target price of $3.50 in February 2023.

 

With the downgrade and fair value slash, Choong beat long-time bears Citi, which would trim their target price to $3.70 in March. 

 

While iFast said it expects to see contributions from the division in 4QFY2023, Choong wrote that FY2024 &ldquo could be a more realistic timeline&rdquo given tight labour market conditions in Hong Kong.

 

However, iFast bounced back quicker than expected. Compared to net losses after tax of $2.7 million incurred in 2QFY2022, iFast posted net profit after tax of $3.6 million in 2QFY2023, up 20.7% q-o-q. In 3QFY2023, net profit after tax surged 308.4% y-o-y to $8.52 million.

 

iFast also reported an earlier and higher-than-expected contribution from the ePension division in 3Q2023, a quarter earlier than guided.

 

Since the release of the 9MFY2023 results, shares of the Mainboard-listed company have recovered to levels last seen in December 2021. 

 

iFast shares started 2022 at $5.81, before news of its Hong Kong project delays weighed the stock to lows of around $4.16 in May 2023. Shares in iFast reached a 52-week high of $8.51 at the start of December 2023, and are now trading around $7.58.

 

This has not gone unnoticed. UBS analysts Aakash Rawat and Benjamin Tan nearly doubled their target price for iFast to $10 in November 2023 from $6.50 previously. 

 

In a Nov 27 note titled &ldquo Is it time to revisit iFast?&rdquo , Rawat and Tan said investors are likely to start pricing in the expected acceleration in earnings per share growth, given the earlier-than-expected contribution from the ePension division in Hong Kong. 

 

&ldquo We believe this could continue to be a catalyst for the re-rating of the stock,&rdquo said the UBS analysts. &ldquo We expect upcoming positive catalysts at the 4QFY2023 results in February 2024, where management is expected to provide updated guidance to the Hong Kong business and we believe are likely to raise it.&rdquo

 

iFast has yet to announce when it will release its results for FY2023. The company reported its FY2022 results on Feb 14, 2023 and announced the date on Jan 30, 2023, a week after the Lunar New Year on Jan 22, 2023. 

 

Bondsupermart Malaysia has received the approval-in-principle from Securities Commission Malaysia to operate a bond marketplace.

 

The subsidiary of SGX-listed iFast Corp aims to launch its bond trading services in Malaysia in the second half of 2024.

 

In an announcement on Jan 20, iFast says Bondsupermart Malaysia wants to be a " centralised and easily accessible marketplace to buy and sell bonds."

 

It will tap on this accessibility to transcend geographical boundaries and connect individual investors, creating a global marketplace for all to participate in both the Malaysian Ringgit and the global bond market.

 

Lim Chung Chun, Chairman and CEO of iFAST Corp, drawing on the company' s experience offering individuals to trade bonds in Singapore, Malaysia and Hong Kong since 2015, observes that the bond market has not seen much innovation over the past decade.

 

In contrast, other segments of the securities markets have undergone improvements propelled by technology whereas bond trading for individual investors is still inefficient, given how the predominant way is via over-the-counter as there are currently few to none exchanges for bond trading for individual investors.

 

" As such, bond investors are unable to enjoy price transparency and trading efficiencies experienced by stock investors who trade via stock exchanges,&rdquo says Lim.

 

According to Lim, iFast Corp as a whole now handles bond trading volume of approximately RM800 million equivalent per month in both the ringgit and foreign currency-denominated bonds.

 

With this base, Bondsupermart Malaysia will enjoy a " solid footing" to attract, grow, and expand further when more participants are onboarded in future,&rdquo says Lim

 

The Bondsupermart platform offers real-time price discovery and will be able to establish market-driven and fair market values for bonds based on supply and demand dynamics.

 

&ldquo In today&rsquo s market environment where interest rates have come up, bond returns have become more attractive and will increasingly become an important asset class in an investor&rsquo s portfolio," says Wong Tze Hong, executive director of Bondsupermart Malaysia.

 

" In markets including Malaysia, market liquidity for bonds has always been an important topic. The new bond marketplace will be the closest to a bond &lsquo exchange&rsquo for individual investors. 

 

" By connecting a greater number of buyers and sellers, and having dedicated market makers to come onboard, it will contribute to enhanced market liquidity that will result in faster execution of trades and narrower bid-ask spreads, ultimately reducing investors&rsquo trading costs and improving the efficiency and overall functioning of the bond market,&rdquo adds Wong.