Local fintech company and digital bank hopeful iFAST Corp is fast becoming a “beneficiary of digitalisation”, says DBS Group Research in a July 24 report. For 2Q2020, iFAST Corporation’s earnings surged 84.7% y-o-y to a record high of $4.53 million, with assets under administration (AUA) growing 11.5% year-to-date.
With results “above expectations”, DBS Group Research has revised its earnings forecasts for FY2020F and FY2021F up 41% and 44% respectively, with analyst Ling Lee Keng maintaining “buy” on the company with an increased trade price of $2.35, up from $1.27.
“Going forward, we continue to expect the acceleration of digital adoption in the wealth management industry to be a positive factor underpinning the growth prospects of iFAST,” says Ling.
DBS has raised AUA growth assumption to 12% p.a. for FY2020 and FY2021, from 8%. The company still has room for AUA growth, says Ling, as the current AUA level remains low at about 10% of the approximately $100 billion in assets under management (AUM) of the authorised and recognised collective investment schemes in Singapore.
The B2C segment grew at a faster rate of 46.1% y-o-y versus 9.6% for the B2B in terms of net revenue. “The strong growth in the B2C division was due mainly to significant increases in transaction fees resulting from increased investment subscription especially in exchange-traded funds (ETFs) and stocks, and service fees arising from the provision of currency conversion from higher clients’ trading volume of ETFs and stocks listed on foreign exchanges,” says Ling.
The slower growth rate for the B2B segment was partly due to the impact of the circuit breaker measures implemented in 2Q2020, notes DBS.
B2C segment accounted for 38% of the net revenue in 2Q20, versus 31% in 2Q2019. In terms of AUA, B2C division grew 27.5% y-o-y in 2Q2020, versus 13.3% for the B2B segment.
iFAST is also pursuing a digital bank licence in Singapore, with a 65% stake in a joint venture (JV) that has applied with the Monetary Authority of Singapore (MAS). The JV also includes Chinese partners Yillion Group and Hande Group.
As one of nine digital wholesale bank applicants shortlisted by MAS back in June, it is targeting small and medium-sized enterprises (SME) and other non-retail segments. “The award of the virtual bank licence, if successful, will add another revenue stream of cash management for the group,” says Ling.
“A digital banking licence will allow the group to broaden its services to include the ability to provide cash management and related wealth management services. The lending capabilities would be another additional revenue stream for the group.”
If it is successful, iFAST expects to launch its digital banking services by the end of 2021. Based on estimates, the digital bank launch is expected to add between 9 - 11% to the Group’s operating expenses in 2022.
The estimated percentage is based on the Group’s effective shareholding of 65% in the proposed digital bank. About $80 million capital is needed, to be funded via a combination of cash, equity and debt financing, notes Ling.
iFAST is an internet-based investment product distribution platform. As at end-March 2020, the Group offered over 7,000 funds from over 270 fund houses, over 1,300 direct bonds, stocks and ETFs (Singapore, Hong Kong and US stockbroking capabilities), as well as discretionary portfolio management services. iFAST has more than 400 financial institutions and other corporations, and over 9,000 wealth advisers are using its B2B platforms. More than 460,000 customer accounts have also been opened across the five markets the Group is operating in.
“In the medium to long term, the Covid-19 crisis is expected to lead to an acceleration in the pace of digitalisation of financial services, and the pace of adoption of Fintech services by consumers. Being a platform provider, iFAST is expected to benefit from this trend,” says Ling.
“An acceleration of digital adoption in the wealth management industry will continue to be a positive factor underpinning the growth prospects of iFAST.”
As at 12.43pm, shares in iFAST Corp are trading at 1 cent higher, or 0.57% up, at $1.75.
