It’s been a breathtaking two years for iFAST Corporation Limited (SGX: AIY) as its business saw massive fund inflows.
The pandemic pushed more people to transact online, resulting in net inflows of S$3.2 billion for 2020 and S$3.7 billion in 2021.
Net profit more than tripled from S$9.5 million in 2019 to S$30.6 million in 2021, and iFAST saw its share price shoot up from just S$1.04 at the beginning of 2020 to S$8.45 at the end of 2021.
Last year, however, iFAST’s business suffered from stock market volatility as a result of high inflation and surging interest rates.
For the first nine months of 2022 (9M2022), the fintech reported a 78.1% year on year plunge in net profit.
At the same time, its share price tumbled by close to 30% last year to S$5.84.
To make matters worse, iFAST saw its share price plunge further by 11% in the past week.
Is the group’s growth story over and should investors be justifiably concerned?
A delay in execution
On 14 January, iFAST provided an update on the status of its Hong Kong ePension division because of a news report announcing that the project had fallen behind schedule due to manpower shortages.
The Hong Kong Provident Fund regulator had stated that the commencement of the Hong Kong pension platform will be delayed by eight months.
Despite this delay, the regulator was optimistic that the original target commencement date set for end-2025 could still be met.
On iFAST’s part, it had been prudent and assumed that contributions from the ePension project will only commence in the fourth quarter of 2023 (4Q2023) as it anticipated some form of delay.
The group still expects some initial contribution from this project to flow into its books in 4Q2023.
As a reminder, back in late 2021, iFAST announced the projected financial numbers from this mega-contract, with its Hong Kong division potentially contributing seven times the net profit that the segment is earning right now.
Management expects this contract to be a game-changer for the group and for revenue and net profit to hit new highs this year as the ePension division is not affected by market volatility.
A temporary setback
As the eight-month delay was attributed to a “manpower shortage due to COVID-19”, we believe that it should be viewed as a temporary problem.
China and Hong Kong were adopting a strict COVID-zero policy back in 2022 with periodic lockdowns, mass testing, and draconian social restrictions.
Because of these measures, sufficient staff could not be hired for the ePension project.
The good news is that China reopened its borders on 8 January and dropped its quarantine requirements, with local authorities stripped of the power to shut down entire communities from February.
These moves are a massive pivot for the country as it finally learns to live with the virus.
It’s envisaged that with the reopening, the Hong Kong pension project should resume with sufficient manpower, thus helping to resolve some of the delays.
Multiple moving parts
Aside from the Hong Kong project, other moving parts to iFAST’s business remain uncertain.
Market volatility may continue into 2023 and pressure fund inflows for the group, resulting in stagnant assets under administration (AUA) growth.
However, with bond yields rising, the group has also seen an increase in bond turnover on its platform which will contribute positively to the business.
Elsewhere, investors are also parking more funds in iFAST’s cash management solutions to take advantage of higher interest rates.
A year ago, iFAST had also splashed out S$73 million to purchase a UK digital bank which is now renamed “iFAST Global Bank”.
The acquisition was to fulfil the group’s digital bank ambition and help to accelerate the growth of its AUA.
This division is projected to incur losses for 2022 and 2023 and is estimated to break even next year.
Get Smart: Keep the faith
It can be tough to stomach periodic bouts of market volatility that negatively affect iFAST’s share price.
However, understand that such fluctuations are part and parcel of investing.
The Hong Kong ePension problems look like a temporary setback for iFAST that should be resolved fairly soon.
Meanwhile, investors can look forward to other levers that may boost the group’s numbers by the later part of this year.
2023 may turn out to be another tough year for iFAST, but if investors can keep the faith, they may be justly rewarded when 2024 rolls around.
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Disclaimer: Royston Yang owns shares of iFAST Corporation Limited.