It’s no secret that volatility has roiled stock markets over the past several months.
The highest inflation in four decades in the US has compelled the central bank there to aggressively raise interest rates.
This surge in interest rates had blindsided the market, causing valuations and share prices to tumble in response.
iFAST Corporation Limited (SGX: AIY) has not been spared.
The financial technology (fintech) company recently reported its fiscal 2022 third quarter (3Q2022) earnings.
Market volatility and challenging market conditions were cited in many instances as the key reasons for a weaker set of financials and a fall in the group’s assets under administration (AUA).
Here are five highlights from the fintech’s latest earnings report.
1. A weaker financial performance
Total revenue for iFAST dipped by 3.9% year on year in 3Q2022 to S$53.5 million.
After deducting commissions and fees to brokers for handling and settlement, net revenue slid by 1.3% year on year to S$30 million.
Expenses, however, shot up by 33.6% year on year to S$27.6 million, resulting in a 66.7% year on year plunge in operating profit to S$3.1 million.
Net profit dived 72.6% year on year to S$2.1 million for the quarter.
It wasn’t a pretty picture for the first nine months of 2022 (9M2022), either.
Despite a 3.5% year on year increase in net revenue to S$88.5 million, net profit plunged by 78.1% year on year to S$5.1 million after including an impairment loss for its Indian business.
The group is gearing up for its Hong Kong e-pension business (more on this later) while incurring initial operating losses for its iFAST Global Bank (iGB) in the UK.
Despite the sharply lower net profit, iFAST has maintained its interim dividend of S$0.013 per share.
2. A dip in AUA
iFAST’s AUA saw a 7.6% year on year decline to S$16.98 billion as of 30 September 2022.
It’s not unusual for the group’s AUA to witness fluctuations in tandem with stock market volatility.
Singapore’s total AUA fell by 5.3% year on year to S$12.32 billion but the country’s business-to-business (B2B) division continued to enjoy strong sales, with AUA relatively unchanged year on year.
The good news is that iFAST continued to enjoy fund inflows during the quarter and for 9M2022.
There was a positive net inflow of S$599 million for 3Q2022 and S$1.8 billion for 9M2022.
That said, net inflows for 9M2022 were around 38% lower year on year compared to the S$3 billion in 9M2021.
3. Bonds and ETFs remain in favour
There were other bright spots for the group.
Bonds turnover in Hong Kong increased substantially in 3Q2022 as bond yields rose alongside higher interest rates.
For Malaysia, bond turnover for the B2B business saw a 15% year on year jump, while the turnover for both stocks and ETFs grew sharply as more clients transferred in their assets from other brokers.
Singapore’s iFAST Global Markets (iGM) division also developed a new bond trading interface for its clients during the quarter to enhance price transparency and provide real-time trade updates.
Interestingly, the proportion of stocks and ETFs as a percentage of total AUA has been increasing over the years.
It was just 11.1% as of 30 September 2020 but increased to 16.8% a year later.
For 3Q2022, the proportion of stocks and ETFs has increased to make up one-fifth of the total AUA.
4. Gearing up for the eMPF contract
iFAST provided a quick update on the Hong Kong eMPF contract.
It is working to ensure that the business is ready for operation and is focusing on aspects such as the enhancement of IT systems and staff recruitment.
The group is also working with consortium partners to get the project on track for launch by the second half of 2023.
As the e-pension project is not subject to market volatility, investors can expect to see significantly higher revenue and earnings from 3Q2023 when the contributions kick in.
iFAST will provide updated guidance on the revenue and profit before tax contributions in early 2023.
5. Growing pains for its digital bank division
Following the acquisition of iGB earlier this year, the division plans to roll out new products and services in the next six months.
The bank is also preparing to launch its digital transaction banking business to support the UK payment services industry along with British Pound payment facilities.
Meanwhile, iGB is also hard at work on a new personal digital banking platform for multi-currency deposits to target clients in both UK and Asia.
The unit contributed a total of S$2.2 million in revenue for 3Q2022, but incurred a net loss of S$2.2 million due, in part, to the closure of physical branch offices of its consumer remittance business and costs related to the exit of its loss-making wholesale business.
Finally, iGB is looking for new partners to enhance its originations for the consumer remittance business and is planning to improve its net interest margins by deploying surplus cash into higher-yielding government and corporate bonds.
Management has reiterated that the division targets to achieve profitability by 2024.
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Disclaimer: Royston Yang owns shares of iFAST Corporation Limited.