iFAST reported decent fourth quarter 2021 results with revenue and net profit growing year on year but revenue growth has been decelerating.
Net revenue grew 16% year on year to SGD28.2 million while net profit grew 5% year on year to SGD7.2 million. The lower net margin was mainly because of lower government support grant, increased operating expenses and losses on Chinese property developer bonds (iFAST is a bond dealer).
Here are the good and the bad points about the latest results.
Revenue growth and net inflows have been decelerating
iFAST cut stockbroking commissions in 2021 and equity and bond market sentiment (particularly Hong Kong and China) was poor in the fourth quarter of 2021. iFAST is a bull market stock. Their recurring revenue is based on a percentage of average stock prices while a rising stock market usually attracts more inflows.
Lower stockbroking commissions is painful in the short term but should be helpful for user retention. Revenue growth should accelerate again when equity markets recover. iFAST Bank will eventually attract more deposits and inflows so I’m not too worried here. But that brings me to my next point.
iFAST Bank will lower profit margins during 2022
iFAST expects at least SGD4 million of losses (excluding transaction expenses) from its UK bank upon deal completion during 2022. This short term pain is unavoidable. Adding a bank to the iFAST eco-system will be a game-changer. Having a bank in a trusted jurisdiction like the United Kingdom will allow iFAST to attract deposits from Asian customers and is pivotal to iFAST’s vision of becoming a global wealth management platform. Net interest income from deposits is counter-cyclical to equity markets (people sell stocks and hoard cash during bear markets) and will diversify iFAST revenue sources.
Larger China losses
iFAST’s China segment reported a SGD1.6 million pretax loss during the quarter compared to a SGD1.4 million pretax loss in 3Q21 and a SGD1.3 million pre loss in 4Q20. iFAST is aiming for this segment to break even in 2024.
Hong Kong guidance is conservative and ePension contributions could begin from May 2023
iFAST’s HongKong ePension contract will lead to a big jump in profitability when the system begins operations. The guidance for the Hong Kong business conservatively provides for a six-month delay in the rollout of the ePension project even though the delay may not likely occur. More guidance will be provided later in the year.
Customer growth accelerated
iFAST added 40,000 more customers in the fourth quarter of 2021, the highest growth seen in three quarters. Growth was achieved at a reasonable price. Unlike competitors, iFAST doesn’t pursue aggressive promotions where they offer free trades and stocks to new customers.
2022 looks like a tough year for iFAST with losses from its UK bank and China segment affecting profitability. These losses should eventually lead to huge inflows and a big win for iFAST so patience is required. I have been buying more shares but in small amounts because market volatility and banking-related losses could result in lower prices this year. Insider buying has been encouraging though with the CEO of iFAST buying more shares in January 2021 (SGD758,792) and February 2021 (SGD298,000). Here’s to iFAST becoming bigger and better!