iFAST 3Q23 highlights

Disclosure: I own shares of iFAST and this post isn’t investment advice.

“Going forward, the Group expects its overall revenue and profitability to show marked improvements”.

iFAST’s stellar 3Q 2023 results marks a new era of hyper-growth. Net profit grew 303% year on year and 100% quarter on quarter after receiving only 1 month of Hong Kong ePension contributions.

ePension segment impact on earnings

A picture speaks a thousand words.

With a full quarter of contributions over the next few months, fourth quarter 2023 earnings could even be 50% higher quarter on quarter!

Let me explain my thinking.

Management is aiming for the HK segment to hit S$18m (HK$100m) pretax profit (PBT) for 2023 but earnings should surprise on the upside because their targets are very conservative.

‌3Q23 Hong Kong PBT was S$7m with only 1 month of ePension contributions,

‌9M23 Hong Kong PBT was S$11m

‌2023 Hong Kong PBT target is S$18m.

‌In short, management targets implies for only S$7m PBT in 4Q23 but 3Q23 PBT was already SGD7m with only 1 month of ePension contributions! There should be at least 50% upside for their 2023 profit target!

Net inflows

Nature is healing. Net inflows are comfortably higher than pre-pandemic levels.  In 2019, net inflows averaged at S$200m per quarter but net inflows reached S$750m in 3Q 2023. Bonds and other cash products such as Autosweep (categorized as money market unit trusts) have been gaining popularity on iFAST platforms.

iFAST Global Bank (IGB)

IGB customer deposits grew 94% q/q to S$230m with the company successfully onboarding new corporate customers. On the personal banking front, IGB has received bank account opening applications from over 50 different countries! These new IGB customers are not existing iFAST customers and will hopefully adopt more iFAST services in the future.

IGB invests customer deposits in cash held at the Bank of England and short duration (1 year or less) sovereign and corporate investment grade bonds. Overnight customer deposits are mainly placed at the central bank with iFAST earning a 1% net interest margin. Investing customer deposits in bonds provide IGB with a 1.5% net interest margin. These are attractive profit margins. Investing S$1 billion of deposits at a 1% net interest margin will yield S$10m of highly profitable net interest income!

IGB is expected to incur losses for the next three quarters but should break even in the third quarter of 2024. As I explained previously, IGB is a game-changer for iFAST because net interest income will be a strong source of counter-cyclical source of income compared to volatile revenue from unit trusts and stocks.

US and UK stocks

iGM has launched new services such as UK stocks and all existing FSM customers will eventually be able to trade UK stocks too.

iFAST is also aiming to launch a direct link to the US by end-2024. Securing application and regulatory approval has been longer than expected.

ORSO ePension

 iFAST has signed on one partner for the Hong Kong ORSO(Occupational Retirement Schemes Ordinance)  project with contributions starting in 2025. ORSO-related revenue will be tied to share prices and assets administered by iFAST ePension will be recorded as iFAST assets under administration. ORSO ePension Services will start “making sizeable contribution” to Hong Kong’s AUA from 1Q2025 onwards

ORSO is a huge pension market (HK$317 billion as of June 2023) and iFAST shareholders will be happy if they can even get 10% of the overall ORSO market.

Dividends

Earnings growth in 2024 should be “robust” and dividends should increase because management believes a 30- 50% dividend payout will allow the company to maintain a strong balance sheet.

M&A

M&A targets will be consistent with the group’s wealth management focus and could potentially involve payment-related companies to encourage adoption of iFAST Bank.

Summary

In short, this was a great quarter. Management’s Hong Kong targets are starting to become reality and net inflows from their core wealth management business has recovered.

iFAST’s $6.31 share price implies a trailing 111x P/E or 22x management’s estimate of Hong Kong earnings in 2025.

Will I buy iFAST at current prices? Probably not but that’s purely for risk management issues. I already have a big position but I can see why others will be keen on a small starter position because it’s still trading at a reasonable forward valuation if you think the ePension segment can hit management’s targets. The next 12 months should be an exciting time for iFAST shareholders!