For the second quarter of 2024 (2Q 2024), iFAST Corporation (SGX: AIY) released a blockbuster set of earnings.
Such a strong performance drove iFAST’s share prices up by over 6% intraday on 26 July.
iFAST Corporation is a Singapore-based financial firm providing a wide array of services such as investing, wealth management services, and banking, among others.
The company has a broad international footprint, enabling it to serve overseas clients, with operations in Hong Kong, China, Malaysia, and the UK.
This international reach, combined with iFAST’s growing financials, underscores the company’s ambition to become a prominent player in the global financial sector.
Now, let us dive deeper into what contributed to iFAST’s impressive growth and explore the future of the company.
Unpacking 2Q 2024’s earnings
For 2Q 2024, the group saw a total revenue of S$93.8 million, marking a significant 72.9% year on year increase from S$54.2 million.
Net profit for the quarter fared even better, surging over fourfold year on year to S$16.0 million.
The company attributed this outstanding quarter to the successful commencement of the eMPF (Mandatory Provident Fund) ePension service in Hong Kong.
Apart from the eMPF ePension service, iFAST has successfully rolled out the Occupational Retirement Schemes Ordinance (ORSO) ePension in 2023.
ORSO ePension is a digital service that allows users to manage their pension schemes effectively, while also providing services to help users make more informed decisions pertaining to retirement planning.
iFAST anticipates that its Hong Kong ePension division will continue to be one of the biggest drivers in the upcoming quarters, with ORSO ePension to start contributing in the first quarter of 2025.
The company also affirmed that other segments will grow steadily, painting an optimistic outlook.
Asset under administration (AUA) reached a record high of S$22.4 million, up 18.9% year on year.
The company highlighted that the optimistic global financial environment in 2024 has contributed to the recovery of AUA from a patchy period back in 2022 and 2023.
iFAST remains steadfast in its goal to achieve an AUA of S$100 billion by 2028-2030.
This target will be facilitated by the company’s ongoing overseas expansion, notably through the launch of iFAST’s digital banking business in the UK in 2022.
Furthermore, with the inclusion of iFAST Global Bank (IGB), the group’s operating cash flow has shot up dramatically since 2023.
Operating cash flow for the first half of 2024 (1H 2024) came in at S$287.9 million, up 1,520% from S$17.8 million a year ago.
Despite this wave of good news, it is important to note that IGB is currently operating at a slight loss.
However, the company is optimistic about IGB’s prospects and is targeting IGB to break even in the fourth quarter of this year.
The digital bank looks set to become a key growth driver from 2025 onwards.
Exciting launches ahead
As mentioned earlier, iFAST’s outstanding results for this quarter were largely attributed to the successful start of its ePension services in Hong Kong.
However, this is just the beginning for the fintech company.
iFAST has laid out some of its upcoming plans which should excite investors.
Firstly, the group has updated on the progress of its upcoming debit card launch for iGB.
iFAST acknowledges that its banking business in the UK faces steep competition from established banks.
Despite this, the group sees immense opportunities in the region and is working towards building a “truly global” business model.
iFAST plans to introduce more services tailored to meet its customers’ needs.
Among these, an iFAST debit card is expected to be launched later this year.
Furthermore, IGB is offering higher interest rates for current accounts compared to other banks, supported by iFAST’s higher margin digital business model.
This approach allows IGB to grow its deposit base, with plans to expand into full-lending products in the near future.
As of 1H 2024, iFAST’s customer deposit amounts grew to S$646.6 million, an increase of 80.3% year-to-date.
In addition to developments in iFAST’s banking business, the company is also preparing to open a bond marketplace later this year.
Dubbed Bondsupermart, this platform aims to tackle the inefficiencies that come with traditional bond markets, such as the availability of information to retail investors.
Lastly, the company is in the process of obtaining further approval to operate as a broker in the US market.
However, iFAST has not yet provided a specific timeline for the commencement of its stockbroking business in the US.
A prudent approach
While optimism for the business is at a high, iFAST remains committed to its conservative business model.
This approach is reassuring to both investors and customers, especially given the rapid growth in iFAST’s banking business.
Looking at IGB’s usage of funds, we can clearly see the company’s prudence in action.
Source: iFAST’s Investors Relations
As seen from the slide above, IGB has allocated the majority of its deposits to safer financial assets.
Most notable positions are cash held with the Bank of England and other banks, as well as short term sovereign and investment-grade bonds.
The company explained its cautious stance, citing a series of bank collapses in the US banking sector a year ago, which were primarily driven by a high-interest rate environment and liquidity mismanagement.
This conservative approach, while evident in iFAST’s banking business, permeates the entire business model of the company.
This was further demonstrated when iFAST chose not to raise its 2024 and 2025 net revenue guidance for its Hong Kong division, stating that the company prefers to provide some buffer when setting targets.
It makes iFAST a suitable long-term investment option, particularly for investors with a lower risk tolerance.
Unique and sustainable business model
One key piece of information that iFAST has communicated to investors is its fee-based revenue stream.
The company explained that its fee-based approach is the engine for the company’s robust return on equity (ROE).
For 1H 2024, iFAST recorded an impressive ROE of 22.7%.
To put this into context, the latest ROE for 1H 2024 for major banks such as DBS Bank (SGX: D05) and OCBC Bank (SGX: O39) was 18.8% and 14.5% respectively.
Traditional financial institutions largely depend on interest rate spreads for their revenue, given that net interest income constitutes the bulk of their earnings.
In contrast, iFAST’s fee-based model is less susceptible to interest rate fluctuations, which can help buffer the business when interest rates decline.
This positioning will be a huge advantage with the US projected to lower interest rates soon.
After all, net interest income only makes up 20% of the company’s total revenue.
With new products in the pipeline, iFAST’s fee-based revenue is expected to rise even further.
This will be a huge contributor to iFAST’s target of achieving S$300 million in shareholder equity by the end of this year.
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Disclosure: Aw Kai Rui does not own any of the stocks mentioned in this article.
