A Fintech Powerhouse : iFAST Corporation (SGX:AIY)

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Most investors following the Singapore equity scene would have heard of iFAST Corporation, which rewarded shareholders with a return of more than 700% for 2020! But what exactly makes iFAST such a amazing counter to own? And why would investors still continue to buy into the stock despite it’s high valuations?

Perhaps the most important question is; is iFAST still worth buying for it’s prospects? Let’s look at the company’s fundamentals and business model to find out.

Business Model

iFAST is a Leading Fintech Wealth Management Platform in Asia, whose main business segments involves the provision of financial services such as investment administration, transaction services, wealth management solutions, and fintech solutions to financial advisory firms, financial institutions, banks, internet companies, as well as retail and high net worth investors in Asia.  The company operates in Singapore, where they derive most of their revenue from, as well as Malaysia, Hong Kong, China, and India.

The main business model of iFAST involves acting as a brokerage, transaction and management platform between product providers such as fund houses and stock exchanges, and end-users such as financial advisory firms, financial institutions, banks, and also retail investors. They also value-add in terms of research and advisory services and Fintech solutions.

Breakdown Of Net Revenue

As we can see from this pie chart, most of their revenues come from trailer fees, with transaction and platform related fees contributing tremendously as well. Trailer fees are fees that a fund manager pays to a salesperson or broker who sells the fund to investors. The trailer fee is paid to the salesperson for providing the investor with ongoing investment advice and services. This fee will be paid annually to the advisor for as long as the investor owns the fund. Platform fees are essentially service charges for using iFAST’s various platforms.

 

Assets Under Administration

Assets under Administration represent the total value of investment products held under the custody of iFAST and have been on a strong uptrend for several years. As of 31st March 2021, AUA has reached a high of S$16.11 Billion. This bodes well for iFAST as AUA is a key determinant of recurring net revenue which took up 75.8% of revenue for FY 2020.

An interesting point to note is that although both recurring and non-recurring revenues are increasing, non-recurring revenues have been growing at a much faster rate. This could depict a gradual diversification of income streams for iFAST.

Recurring And Non-Recurring Income

IFAST classifies Transaction and Commission fees and FX margin fees as Non recurring revenue while Recurring revenue includes Trailer, Wrap, and Platform fees, and Net interest income from AUA. Recurring revenue increased by 14.1% YOY while Non recurring revenue increased by 107.7% YOY. 

If we look at the different product segments under IFAST, we can see that while Unit trusts under administration grew by 31.8% and bonds grew by 15.3%, most of the growth came from Cash accounts which grew by 131.2% and Stocks & ETFs which grew by a whopping 201.6%! This most likely caused the surge in Non recurring revenue for the year.

Net Revenue Growth And Profit Margins

Net revenue has more than doubled since 2016, with net profit quadrupling as well. However if we look at 2019 performance, we can see that the net profit was still quite a distance from 2020 performance. This could be because of a surge in Non-recurring net revenue for 2020. Profit margins for the business (net revenue to net profit attributable) were averaging 15.4% for the past 4 years, but shot up for 2020 to 24.6%.

Geographical Footprint

IFAST is well established in Singapore and Hong Kong, where it offers its full suite of products and services. In Malaysia, IFAST offers its wealth management platform for financial advisors and also its Fundsupermart and Fintech solutions arm. In China, IFAST mainly provides funds distribution and investment platform services to companies. IFAST holds a 39.25% stake in IFAST India Holdings, which handles its India operations. 69.1% of their net revenue are derived from Singapore, with Hong Kong in second place with 18%, Malaysia with 9.3%, and China/India contributing 3.6% together. 

Dividend Payout 

The company does not have a formal dividend policy but has been increasing and paying out dividends since 2015 to it’s investors. For 2020, they paid out 42.40% of their profits as dividends. At the moment, with a share price of $9.18, iFAST gives a small dividend of close to 0.40%.

Share Price Valuation

At it’s current share price of $9.18, PE ratios for iFAST are over 90x, with a PS ratio of close to 14x as well. It’s definitely valued at a premium right now. iFAST also has an ROE of around 25%. Investors likely believe that iFAST will do extremely well in the future, therefore being willing to pay it’s high share price. The company has a market cap of S$2.54b at the moment.

Conclusion

iFAST has definitely shown it’s resilience and ability to perform well even during the pandemic. The company has not only maintained it’s track record of increasing revenues and profits, but has also managed to grow them to new highs. Looking forward, as more and more people start to pick up investing, iFAST should be well positioned to take advantage of the demand for brokerage and management services. With most of it’s platforms and services being provided online, as well as a asset-light business model, iFAST definitely has the odds of succeeding stacked in their favor.

However investors should be aware that as iFAST expands, they will be facing other brokerage platforms and more competition as more and more entities attempt to seize market share in the cash / asset management business. Another factor is that a large portion of their recurring revenues are dependent on demand for Unit trusts which provide them with most of their trailer fees.

To end off, iFAST is definitely a great company to own, but investors should take into consideration it’s current valuations and business / growth prospects before committing themselves.

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