iFAST, which is one of my major positions reported a mixed set of results for the second quarter of 2019 but there was some good news too.
Assets under administration (AUA) grew 8.5% year on year to a record SGD9.0 billion despite weak unit trust subscriptions. The company’s bond business is growing rapidly with bonds being the second largest part of total AUA. Bonds made up 7.5% of the company’s AUA in Q2 2019 compared to 6.2% in the same period last year. Bonds sold on iFAST platforms also grew 6% quarter on quarter.
Net revenue grew 9.5% but net profit fell 16.5% year on year to SGD2.5 million because of IT investments related to new products (eg. cash sweep account in Singapore and bonds in Malaysia) and deeper losses in China. The drop in China AUA and larger net loss is troubling but probably expected given the uncertainty around the US-China trade war. The company is also maintaining its quarterly 0.75 cents dividend which is unchanged from the same period last year.
I’m not happy about the drop in Q2 net profit but these technology investments and China losses should work out in the long run given the company’s strong track record in delivering earnings growth across Singapore, Malaysia and Hong Kong.
Here’s the good news. The company is in talks with partners to apply for one of the 5 digital banking licenses in Singapore. iFAST is evolving from being a distributor of unit trusts to become more of a financial supermarket with the company’s bond, equities and cash management business growing steadily. The company recently launched a cash sweep account in Singapore which offers an attractive 1.3% interest rate to attract investors to keep dividends and cash on the investment platform. Unit trusts make up 84% of AUA in this quarter compared to 92% in end-2017. A successful win for a Singapore digital banking license will also be a game-changer for iFAST but it’s still early days. iFAST is trading at 32x trailing P/E and 21x trailing P/E excluding China losses.
I’ll be happy to add more to my current position if the share price crashes on Monday.