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Analyst Insight: 20 Takeaways From iFAST Corporation Ltd’s 2018 Third Quarter Earnings Briefing

This article continues on from my colleague Chin Hui Leong’s recent article which shared 10 takeaways from iFAST Corporation Ltd‘s (SGX: AIY) latest analyst briefing for the company’s 2018 third quarter earnings update released last Saturday.

Here are 10 more key points from the briefing:

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11. Lim Chung Chun, iFAST’s CEO and co-founder, believes that drivers for the company’s bottom line can be significantly stronger should iFAST manage to obtain a virtual banking license in Hong Kong (this alludes to the banking model where the bulk of revenue comes from net interest income).

12. The wealth management industry’s assets under administration (AUA) in Singapore is at least US$60 billion to US$80 billion, and iFAST has captured just a small fraction of this currently (the company’s AUA in Singapore was just S$5.62 billion as of 30 September 2018). This implies that there is a lot more room for growth just in Singapore alone, even though some investors may feel that the market here is small and saturated.

13. India is the biggest Independent Financial Advisor (IFA) market in Asia, but the take-up rate has not been good due to draconian laws and regulations. However, this is improving over time with the regulators allowing more IFA to take up wrap platforms.

14. The timeline to build the China business to a sufficient scale to able to list it is around three to five years. iFAST’s management thinks that it is necessary to include the Hong Kong business together as a package for the listing as the two countries are intricately linked.

15. HK$300 million in capital was a necessary requirement for iFAST to qualify for the recent bidding for a virtual banking license in Hong Kong, but no actual money is needed to pay for the license (unlike telecom licenses for example). This explains why iFAST took up a short term loan of around S$10 million this quarter.

16. iFAST has no current intention to issue new shares of itself to raise money for its China expansion because management thinks that iFAST’s share price is at a valuation which undervalues the company, due to investors ascribing a negative value for the loss-making China business. Hence, a placement exercise at this point would not be in the best interests of iFAST’s minority shareholders.

17. Lim also talked briefly about potentially disrupting the insurance industry, which he described as being “deliberately opaque.” He said that most of the players in the insurance industry are seeking to promote an environment of non-transparency, and that they operate in a manner “similar to a cartel.” However, any changes should be incremental and taken slowly as changing the current model is not as simple as it looks.

18. Out of 360 companies in iFAST’s B2B division that are using the company’s platform, 210 (around 58%) are from Hong Kong.

19. The US-based Charles Schwabb was quoted in the analyst briefing as an example of a discount brokerage which managed to reduce its commissions on each trade to just US$4.95, but up to 50% of its revenue is earned from net interest income – this demonstrates a discount brokerage’s ability to evolve from a pure broker (transactional) model to a pseudo-bank model that earns the bulk of its revenue from net interest income.

20. Lim thinks like an entrepreneur and he wants to build a business so that he can leave a legacy behind and be remembered for what he did. He is a value investor and will take a slow and measured approach to growing the business over the long-term.

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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 Chong Ser Jing doesn’t own shares in any companies mentioned.