iFAST Corporation Limited (SGX: AIY) has just reported its latest fiscal 2022’s second quarter (2Q2022) earnings, and there were some surprises.
Compared to a net profit of S$7 million last year, the fintech company had chalked up a net loss of S$2.7 million for the quarter.
The volatility that is roiling stock markets was cited as a reason, plus iFAST had also incurred a one-off impairment charge of S$5.2 million (more on this later).
It was a stunning reversal for the company and is sure to result in a further plunge in its share price from last year’s all-time high of S$10.
iFAST’s stock has more than halved year to date, and investors are probably wondering if there is further downside.
Here are five key highlights from the group’s latest quarterly earnings.
1. Exit from India and impairment loss
The group announced that it will be exiting its onshore platform business in India.
The Securities and Exchange Board of India (SEBI) announced the discontinuation of the usage of pool accounts for mutual fund transactions with effect from 1 July 2022.
As a result of this ruling, iFAST India believes that it cannot continue to deliver efficient online platform services to its clients.
Therefore, the painful decision was made to withdraw, but the division will pivot to focus on providing global fintech solutions instead.
Due to this move, iFAST will recognise a one-off, non-cash impairment charge of S$5.2 million.
2. Weaker financials
Revenue for the quarter crept up 4.7% year on year to S$53.2 million, aided by the group’s assets under administration (AUA) inching up 0.8% year on year to S$17.68 billion.
However, total expenses surged by 49.9% year on year to S$27.4 million.
This increase, coupled with the S$5.2 million impairment loss, resulted in iFAST incurring an operating loss of S$2.3 million for 2Q2022.
Excluding this one-off impairment, net profit for the quarter would have plunged by 64.3% year on year, contributed by start-up losses of close to S$1 million from iFAST Global Bank.
For fiscal 2022’s first half (1H2022), iFAST saw revenue inch up 0.3% year on year to S$106.5 million but net profit (excluding impairment loss) nearly halved year on year from S$15.8 million to S$8.2 million.
3. Maiden contribution from the banking division
Earlier this year, iFAST purchased a UK Digital Bank, BFC Bank, for S$73 million and renamed it iFAST Global Bank.
2Q2022 has seen the bank make its maiden revenue contribution, with revenue of S$3.9 million added to the group’s total.
The bank’s main source of revenue involves consumer remittances (i.e. fee income).
It is now working on new systems, products and services such as online account opening and multi-currency deposits that will be rolled out over the next two to three quarters.
These new services are expected to contribute to the bank’s net revenue.
iFAST’s banking division is expected to contribute start-up losses to the tune of S$4 million for this year and is targeting profitability by 2024.
4. Enhancing its platform
During the quarter, iFAST launched new products on its platform.
In Singapore, its iFAST Global Markets (iGM) division launched Singapore Government Bonds (SGS) as a new product to enable investors to invest in bonds to capitalise on higher interest rates.
For Malaysia, exchange-traded funds, or ETFs, were recently included in the Managed Portfolio services and the platform has plans to launch new exchanges such as China’s A-share market as well as cash account types in the second half of 2022.
And in Hong Kong, iFAST has signed on new external asset managers (EAMs) in 2Q2022 who are in the process of transferring their AUA to iFAST’s platform.
These snippets of news point to continued success in business development for the fintech company.
5. Interim dividend kept constant
Despite the net loss, iFAST’s free cash flow stayed healthy for 2Q2022 at S$5.2 million while 1H2022 saw a free cash flow of S$6.6 million.
As a result, the group kept its second interim dividend constant year on year at S$0.011 per share.
Get Smart: Better days to come in 2023
iFAST expects its business to see accelerated growth in late 2023 onwards as the Hong Kong ePension project starts contributing.
This assumes that the project will begin in 4Q2023.
Meanwhile, this confluence of negative events may persist in the near term and the group has warned that FY2022’s net profit will see a “substantial decline”.
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Disclaimer: Royston Yang owns shares of iFAST Corporation Limited.