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iFast vaults from Centurion to Billion Dollar Club and dominates sector

The Edge Singapore
The Edge Singapore • 4 min read
iFast vaults from Centurion to Billion Dollar Club and dominates sector
iFast rocketed from barely above $1 at the start of 2020 to flirting with the $10 mark barely 18 months later.
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When the pandemic struck and large parts of the economy came to a standstill, many sectors — including the financial services industry — suffered from a kneejerk reaction and investors braced for the worst.

While there were some worries over bad debts and soured loans, the sector eventually sailed through nicely. Within the broader sector, the brokerage and investment-related segments posted much better earnings growth than expected, as investors seized on the market correction to pile in and trade even more heavily.

As such, UOB Kay Hian — one of the largest and most established brokerages — was able to report the most growth in earnings over the previous period, topping this category within the BDC’s Banking and Investment Services and the Insurance industry sector.

UOB Kay Hian is one of Asia’s largest brokerage firms, with more than 80 branches worldwide, helping clients trade across various major kinds of asset classes.

As its earnings report has shown, the brokerage enjoyed a handsome FY2020 ended December 2020. The steep market correction triggered by the pandemic in March sparked off a huge jump in trading volume instead, as markets rebound thanks first to strong liquidity support from central banks and then further fuelled by optimism about the economic recovery.

See also: iFast emerges as best performing stock, eyes 'truly global' FinTech business

UOB Kay Hian’s commission income grew significantly across all its regional operations, except Indonesia which saw a small revenue decrease. For FY2020, operating revenue was up by 57.6% to $587.6 million, versus FY2019’s $372.7 million.

In the same period, earnings grew by a much bigger magnitude of 132% to $160.7 million from FY2019’s $69.3 million, which it says is a reflection of its efficient operating leverage. For FY2018, it reported earnings of $74.8 million, giving it a three-year compounded annual growth rate of 12.5%, which beats its peers in the same industry sector.

UOB Kay Hian’s FY2020 earnings were also given an additional boost from the DBS remisier business in Singapore acquired in 4QFY2019 and also the Malaysian wealth management business acquired in 2QFY2020. “We shall continue to explore sensible M&A opportunities to complement and build on value-added financial services,” the company states in its annual report.

The big winner, however, is iFast Corporation. Led by founder, chairman and CEO Lim Chung Chun, the company has been named the winner for delivering the best returns to shareholders; it gave the best weighted return on equity and it has also been named the overall sector winner for the companies in the Banking and Investment Services; Insurance industries.

iFast Corporation is led by founder, chairman and CEO Lim Chung Chun

What makes iFast’s win even more remarkable was that in the preceding edition of the Billion Dollar Club, the company was still competing in the Centurion category for companies below $1 billion in market value, where it was honoured for giving the best returns to shareholders.

It has been a remarkable year for the firm, whose earnings surged as it hit a sweet spot in the economies of scale that came with a growing asset under administration base that crossed $14.45 billion in FY2020 ended last December, up 44.5% from the preceding year.

Due to better efficiencies, every extra dollar iFast collected in fees were able to translate to higher-margin earnings. While revenue increased by 35.5% y-o-y to $170 million for FY2020, earnings jumped by 122.3% in the same period to $21.2 million, showing “the positive operating leverage and scalability of the group’s business model.”

“iFast believes that the robust growth seen by the group this year has resulted from its past investments in building up a strong integrated digital wealth management platform. iFast will continue to work hard on various initiatives in all existing markets that the group operates in to ensure that its medium to long term growth prospects will remain strong,” notes the company in its FY2020 earnings commentary.

“Barring unforeseen circumstances, the group expects further growth in its business performance and targets to improve its operating margin in 2021.”

Some savvy investors seem to have caught wind of iFast’s growth. The markets, in general, suffered big sell-downs in the early months of the pandemic. iFast was no exception. Yet, when other stocks recovered, iFast rocketed from barely above $1 at the start of 2020 to flirting with the $10 mark barely 18 months later.

Photos: Albert Chua/The Edge Singapore

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