SINGAPORE (Nov 19): Wealth management firm iFast Corp has had to face challenging market conditions in the last six months, concedes its chairman and CEO Lim Chung Chun. Fears of a trade war have sparked selloffs in Asian markets, and investors are on tenterhooks, amid an environment of rising rates.
But iFast’s long-term diversification from a unit trust platform to a comprehensive wealth management solution — distributing stocks, bonds, exchange-traded funds (ETFs) and insurance — has ensured continued growth in assets under administration (AUA), Lim reckons.
Indeed, the company’s AUA has grown 18.7% y-o-y to hit a new record high of $8.5 billion as at Sept 30 (see chart). iFast’s business remains driven by local investors, with 66.1% of total AUA coming from Singapore. Its second-largest market is Hong Kong, which accounts for 24.1%. It also operates in India, Malaysia and mainland China, although the latter segment is still in the red. By product, some 86.5% of AUA is in unit trusts.
The bulk of iFast’s AUA comes from the B2B segment — more than 330 financial advisory companies, banks and financial institutions use its platform. This is in contrast to the early years when iFast was better known to retail investors for its B2C business, the website Fundsupermart, and more recently, its multi-product platform FSMOne. Among other things, FSMOne offers retail investors share trading, putting it in direct competition with the dozen or so incumbent brokerages.
The launch of FSMOne two years ago hit a snag. At that time, OCBC Securities was to have acted as a link to the Singapore Exchange in settling the trades. However, the brokerage unexpectedly turned off that access just before the platform was about to go “live”. The disruption was nevertheless a “blessing in disguise”, as it pushed iFast to quickly become a trading member of SGX and clearing member of the Central Depository, Lim says.
“I think the stockbroking industry in Singapore was caught by surprise by our entry. There was an initial knee-jerk reaction to it. But I think subsequently, they realised the market could accommodate different players, each with its own business model,” he says. FSMOne charges a commission of 0.08% on stock and ETF trades in Singapore, and has a minimum fee of $10. In contrast, brokerages charge flat fees regardless of the trade value. These fees typically exceed $20 per transaction.
In the current landscape, Lim is confident that iFast can grow further on its home ground, despite volatile market conditions ahead. Meanwhile, he is doubling down on Hong Kong, having made an application for a virtual banking licence there. iFast is simultaneously exploring a restructuring that could see the Hong Kong and China businesses spun off and listed in a market like Hong Kong as a standalone subsidiary.
Greater China moves
Lim is a staunch believer in the potential of the mainland Chinese market for his B2B wealth management solutions. However, the losses from the segment have been a pain point for investors. In a December 2017 report, RHB Research analyst Jarick Seet said iFast’s projected losses in China was one reason for limited upside. The research house, citing limited manpower, ceased coverage on the stock. The bleeding in that market has continued. For 3QFY2018 ended Sept 30, losses in China deepened 24.4% y-o-y to $1.28 million, owing to “negative market sentiment”.
However, Lim is confident that its investment in the country will pay off in the long term. “The reality is that the platform business model [requires] a gestation period with initial losses. We don’t operate on very high distribution margins per client… The investment platform business requires scale and enough customers. Every market will require time to become profitable, and China is no exception. We believe the China business will be exciting,” he says. “Of course, many stock market investors may be impatient. But we think the investment we are putting into China, relative to the potential of the market, is certainly worth [it].”
In August, iFast announced it had appointed PwC as the lead financial adviser in its effort to source for investors for its China and Hong Kong businesses. The company hopes to enlarge the share capital of two wholly-owned China and Hong Kong subsidiaries by 15%, and channel the additional funds into growing the greater China business.
In Hong Kong, iFast has applied for a virtual banking licence. Virtual banking licences, mooted by the authorities earlier this year, would enable companies to provide banking services online in Hong Kong without a physical presence there. Other companies known to have applied for the licence include Standard Chartered Bank and online lender WeLab.
There is no guarantee that iFast will get the licence. But if it does, the company will seize the opportunity to move into traditional banking services such as deposits and lending, Lim says. “When we looked at making our wealth management services more comprehensive, we looked at some of these basic banking services and how they could strengthen our overall business model,” he says. Providing both banking and investment services would enable iFast to create a more seamless customer experience, he adds. The company would target both individual consumers and small and medium-sized enterprises.
When asked if he thought Hong Kong clients would be comfortable depositing cash with a non-bank company, Lim replies: “Hong Kongers are quite used to parking cash in a trust account with their securities firms. It happens in Singapore as well, but to a lesser extent.” While Hong Kong is among the first in Asia to experiment with a virtual banking licence, the concept has already taken off in the UK, where non-banks participate actively, Lim says. He expects that more countries could go in this direction in the future.
Ultimately, Lim believes the Greater China business would best be reorganised and listed as a separate entity, in a market such as Hong Kong. When asked if he is aiming to list on the Main Board or GEM board, Lim says: “If we do so, we would certainly want to aim for the Main Board eventually. We want to build [the greater China business] to a decent size; we don’t have to rush to seek a listing that soon. There’s no point in rushing. But in terms of the mid- to long-term plan, we want to bring it to a decent size — in terms of AUA, profitability and the potential market cap at the point of listing.”
Home ground strength
As it pursues its plans for Greater China, Lim is banking on continued growth in the Singapore market. Is Singapore not a mature market with limited growth? “My view is that we are very small relative to where we can be. So there is a long road [ahead] for us, even just in Singapore,” he replies.
For 3QFY2018, AUA for the Singapore market grew 14.2% y-o-y to $5.62 billion. On FSMOne, all product segments saw robust growth, Lim says. Strength in its home market anchored iFast’s solid performance despite market volatility. Net revenue for 3QFY2018 grew 18.8% y-o-y to $15.5 million, while profit grew 29.5% y-o-y to $2.6 million. The company generated net cash of $14 million from operations for 9MFY2018. Excluding the mainland China segment, this figure would be $16.8 million. iFast currently has cash of $37.9 million and debt of $10 million.
DBS Group Research analyst Ling Lee Keng expects iFast’s AUA to rise 12% y-o-y for FY2018. In an Oct 29 report, she revised this figure up from a previous forecast of 8%. “We believe that there is still room for growth as the current AUA level remains small relative to the size of the wealth management industry in Singapore and the other Asian markets it operates in,” she writes.
If iFast’s bid for a virtual banking licence in Hong Kong materialises, it would further “strengthen its position as a key wealth management fintech player”, Ling says. She has a “buy” call on iFast, with a price target of $1.33. Shares of iFast closed at $1.17 on Nov 15, trading at 28.8 times earnings.
