iFAST Corporation Ltd (SGX: AIY) released its 2018 third quarter earnings update last Saturday and my colleague Lawrence Nga wrote an article covering the major points on the company’s latest financial numbers as well as key metrics relating to its growth. I attended the analyst briefing hosted by the company and below are the first 10 takeaways from the briefing. Check back for more tomorrow! [Editor’s note: An article on 10 more takeaways from the briefing has been published. It can be found here.]
1. Asian financial markets have been volatile, but iFAST managed to grow its assets under administration (AUA) in 2018’s third quarter to S$8.5 billion, up from S$8.33 billion in the second quarter, and up 18.7% year-on-year.
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2. Fintech firms are sprouting up like mushrooms and the industry is evolving, but not all of these upstarts will be successful. iFAST CEO Lim Chung Chun believes that a successful fintech firm needs to have the ability to handle a broad range of functions, including IT, licensing, regulatory compliance, and business model. Most firms try to steer clear of that route as they are IT people and are therefore not familiar with the compliance aspect.
3. iFAST will incur higher expenses in the short-term for its China business. Investors will need to keep their eyes on the long-term picture to understand what can be achieved. For the first nine months of 2018, losses from iFAST’s China operations was S$3.48 million, or 14% higher year-on-year.
4. As iFAST continues to scale up its services and products within its platform, operating leverage will kick in and its margins should move up in tandem. However, this effect may not have been obvious in the last two to three years as the company was spending money to upgrade its systems and hire new staff.
5. Capital expenditure for 2018 will be higher due to investments in intellectual property and the IT team. The spending would help to increase iFAST’s capabilities and upgrade the associated infrastructure. Operating cash flow for the first nine months of 2018 was also higher at S$14 million compared to S$13.2 million for the whole of 2017 – this is a positive sign.
6. Lim commented that financial institutions spend hundreds of millions of dollars to upgrade their hardware and systems. However, iFAST only spends a few million as its systems are built in-house and can be integrated easily.
7. Do-It-Yourself unit trust transactions make up around 8% of all transactions. The bulk of unit trust buyers still go through an intermediary at the moment. Lim thinks that this can eventually go up to as high as 25% to 30% eventually (without using a middleman).
8. The aim for iFAST is to eventually push down transaction costs (for the company’s FSMOne brokerage arm) to zero, and to make money from other aspects of the business. According to Lim, brokerages will eschew this approach as they used to make a lot of money from trading commissions and fees but he believes that the old model will not be possible anymore.
9. A new source of recurring revenue for iFAST is Fintech solutions maintenance fees (currently, only a few percentage points of total revenue). Fears of cannibalization are unfounded as Lim believes that fintech firms will still set up on their own without iFAST’s help anyway. As such, iFAST is better off earning something from helping them. It also helps iFAST to understand its competition much better.
10. In a way, fintech solutions represent a kind of competitive moat as not many other competitors have the level of competence which iFAST possesses. Meanwhile, there are hardly any other fintech platforms which are able to handle a comprehensive suite of services and the associated issues between the many functions.
In my follow-up article, I will be discussing the remaining 10 takeaways from iFAST’s analyst briefing.
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The Motley Fool Singapore contributor Royston Yang contributed to this article. Royston owns shares in iFAST Corporation.
The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. Motley Fool Singapore has recommended shares of iFAST Corporation. The Motley Fool Singapore writer Chin Hui Leong owns shares in iFAST Corporation.