After what has been described by some analysts as a “tumultuous” FY2022, iFast Corp AIY expects better days ahead, with “high growth in revenue and profitability between 2023 and 2025”, according to its management.
In FY2022 ended December 2022, iFast’s net profit plunged 79.0% y-o-y to $6.42 million, weighed down by the negative market environment, a loss-making UK acquisition, its exit from India and delays in an anticipated Hong Kong project.
iFast was hailed as Singapore’s “best-performing stock” during the pandemic years. Fresh off an all-time high stock price of $10, the wealth management platform operator started 2022 by acquiring a UK digital bank for some $45.9 million, with an additional injection amount of $27.5 million.
To finance the purchase, iFast raised $105 million via a placement of 14 million new ordinary shares to institutional and accredited investors. But even then, iFast had sounded warnings of “initial start-up losses” extending till 2023, which would put a dampener on its earnings.
Nevertheless, market sentiments soon soured, resulting in what iFast’s management had described as a “weak start” to the year. In 1QFY2022, iFast’s net profit fell 34.9% y-o-y to $5.74 million.
In 2QFY2022, iFast reversed into the red, posting a net loss of $2.69 million due to a one-off impairment of $5.2 million after iFast India Holdings, an associate company, announced its exit from the market.
See also: Weighed down by $5.2 mil India exit impairment, iFast books 79% lower net profit in FY2022
After the loss-making quarter, iFast returned to the black in 3QFY2022 with a net profit of $2.08 million, down 72.6% y-o-y.
Most recently, iFast’s 4QFY2022 missed analyst estimates as earnings fell 82% to $1.30 million while total revenue fell 11.3% to $48.5 million y-o-y.
As a result, iFast’s FY2022 patmi missed estimates, coming in at 92% of UOB Kay Hian Research’s full-year forecast and 91% of CGS-CIMB Research’s estimates.
See also: iFast misses estimates in 4QFY2022, higher profit teased for FY2023
CGS-CIMB downgrades iFast
However, analysts from the two research houses have responded to the results differently. While UOBKH’s Heidi Mo is maintaining “hold” on iFast with a higher target price of $5.06 from $3.62 previously, CGS-CIMB’s Andrea Choong has downgraded the stock to “reduce” with a lower target price of $3.50 from $3.80 previously.
With the downgrade and fair value slash, Choong beats long-time bears Citi Research, whose analysts Tan Yong Hong and Tian Yafei in a Feb 16 note maintain “sell” on iFast with a target price of $3.80, unchanged since July 19.
Citi was the first to sound alarm bells for iFast’s share price, which had swelled from $1 in January 2020 to $10 in September 2021. In a Jan 8, 2022 note, Citi analysts warned of “high risk” due to share price volatility and word of the UK bank acquisition.
Following iFast’s full-year results, CGS-CIMB’s Choong takes issue with several risks, chief among them the delay in the Hong Kong e-Pension (eMPF) project, touted as a potentially significant source of revenue.
iFast announced on Jan 14 an eight-month delay for this project, owing to a labour shortage. Speaking at the release of iFast’s FY2022 results on Feb 15, CEO Lim Chung Chun explains that the manpower shortage is largely faced by overall contractor PCCW.
While iFast expects to see contributions from the division in 4QFY2023, Choong thinks FY2024 “could be a more realistic timeline” given tight labour market conditions in Hong Kong.
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In addition, a component of this project is related to the Occupational Retirement Scheme (ORSO), where fees are dependent on assets under administration (AUA). Choong warns that this will be subject to market volatility. “As we understand that these service fees are milestone-based, we build in a 40%–50% discount to these contributions pending visibility on achieving these goals.”
Maintaining payouts
Where UOBKH’s Mo and CGS-CIMB’s Choong agree is iFast’s “healthy” net inflows of client assets despite an 8.3% y-o-y decline in 4QFY2022 AUA to $17.42 billion. Net inflows of client assets reached $263 million in 4QFY2022 and totalled $2.12 billion in FY2022.
Another bright spot is in iFast’s dividend payouts, unchanged at 4.80 cents for the full year despite the drop in profit, and up from 3.30 cents in FY2020. “Technically, dividends per share [DPS) for this year is at a record high,” says Lim.
By maintaining DPS, iFast’s FY2022 payout ratio is 120.9%, up from 43.2% in FY2021. “Profitability went down substantially in 2022,” says Lim, “so we’re actually paying out a lot of dividends for 2022.”
iFast’s stronger net cash position is another highlight. Cash and cash equivalents came in at $151.1 million as at Dec 31, 2022, up 242% from $44.1 million the year prior. Net of bank loans and deposits and balances of customers, this stood at $84.09 million.
This was due mainly to net cash generated from operating activities in FY2022, proceeds of $103.33 million from the January 2022 share placement and net cash of $49.53 million from the UK bank — dubbed iFast Global Bank.
iFast’s business is “quite cash-generating”, says Lim. While the company will have to maintain “sufficient capital” for the UK bank, Lim thinks there will still be leftover funds.
As profitability improves in 2023, Lim expects to “maintain a similar dividend rate as last year”. “We still want to have a good dividend payout going forward… Once we’re in a steady state, I imagine a payout ratio of 30% may be a comfortable number.”
Watch for opex increase
iFast’s total operating expenses (opex) increased 41.5% y-o-y to $27.79 million in 4QFY2022 and 33.7% y-o-y to $103.84 million in FY2022.
By quantum, the largest contributor to opex was staff costs, which grew 22.7% y-o-y to $46.2 million for the full year.
This did not come from additional staff from the UK bank, says Lim. “The biggest team is actually in Malaysia, where we hire a lot of IT and customer service staff. But in terms of actual cost, the highest is from Singapore, which is our HQ.”
Meanwhile, equity-settled share-based payment to staff and advisers jumped 78.8% y-o-y to $10.6 million in FY2022.
One of the big increases in costs is the company’s performance share plan, or PSP, says Lim. “That has been something that we have given out as a non-cash item, but it will hit the P&L [profit and loss statement] ... We allocated a lot more partly in anticipation of the strong growth that we’re going to see in the next few years.”
Lim highlights equity participation among iFast’s senior staff. “We believe in a model where the employees generally participate in the overall growth as a shareholder… Otherwise, it’s not possible for me to run a business in five different countries.”
Management will emphasise cost moderation this year, says Lim. He also maintains that the UK bank will turn a profit in 2024. Management continues to target breakeven in FY2024, though Lim notes FY2023 losses may be comparable to the $5.04 million loss posted in FY2022.
To account for higher opex in the coming years, UOBKH’s Mo cuts FY2024 patmi by 40% to $50.3 million. Notably, Mo’s forecast patmi of $41.3 million for FY2023 is a 545% spike from FY2022. “We believe iFast has scalability in the Hong Kong and the UK markets, which will significantly boost earnings ahead.”
