A volatile stock market usually throws up opportunities to buy great companies at cheaper valuations than before. One such opportunity is with iFAST Corporation Ltd (SGX: AIY).
I believe iFAST would be a superb growth stock to own for the long-term. Here’s why.
A great business
Headquartered in Singapore, iFAST is an Internet-based investment products distribution platform that provides a comprehensive range of investment products and services to both corporate clients and retail investors.
The company has two main business divisions, namely, Business-to-Consumer (B2C) and Business-to-Business (B2B). Together, they offer over 8,800 investment products (including unit trusts, bonds, stocks and exchange-traded funds), and services such as online robo-advisory portfolios and financial technology (fintech) solutions to their customers. As of 30 September 2018 (the end of iFAST’s third quarter of 2018), assets under administration (AUA) stood at S$8.5 billion; iFAST achieved a ninth consecutive quarter of record AUA levels.
iFAST’s moat comes from its network effect. As the company signs up more suppliers (such as fund houses, banks, and insurance companies), more B2B customers (such as financial institutions financial advisory firm) will see value in the platform, as there are more products to sell to their own clients. With more sales, the suppliers would then be keen to add more products, bringing in even more sales when iFAST’s B2B customers sell more products to their own customers. A similar phenomenon applies to iFAST’s B2C business too.
Any company that can generate stable recurring revenue has a strong business. iFAST earns recurring net revenue through trailer fees, platform fees, and wrap fees. The major part of this revenue is from trailer fees, which are the fees that a fund house pays iFAST for carrying its funds on the platform.
Strong historical growth
The following chart shows how iFAST’s net revenue and net profit (excluding China) has grown over the past couple of years:Source: iFAST 2017 annual report
iFAST’s net revenue has increased by 11.7% annually from 2011 to 2017. Likewise, its net profit has climbed by a commendable 29.7% during the same time frame. In 2017, net profit (excluding China) hit a record high due to highest levels of AUA achieved in Singapore, Hong Kong and Malaysia.
iFAST’s business in China is still in the early stages and is currently loss-making. Over the long-term, however, iFAST has a firm conviction in its China business as China is expected to be the biggest wealth management market in Asia.
Healthy growth ahead
On top of China, there are opportunities to grow further in the region. The current AUA is still a small fraction relative to the size of the wealth management industry in Singapore and Asia. In the 2018 second-quarter, iFAST set an AUA target of S$100 billion to be achieved by 2028. In Singapore, the company set its sights on an AUA of S$35 billion by the same year.
iFAST has also applied for a virtual banking licence in Hong Kong. There is no guarantee that the company will secure the licence, but if it does, there is room for iFAST to further grow as a wealth management platform in Asia.
We might also see iFAST listing its Hong Kong and China businesses in the future. During its 2018 third-quarter earnings update, it said:
“In recent months, we have taken steps to work towards a structure whereby in the medium to long term, our Hong Kong and China businesses could be organised as a separate standalone listed subsidiary. We expect these efforts, when materialised, to strengthen the overall capital base of the Group.”
At iFAST’s closing share price of S$1.04 yesterday, it had a price-to-earnings (PE) ratio of 24 and a dividend yield of 3%. I believe the valuation is not demanding given iFAST’s strong historical growth and the opportunities that it has in the years ahead.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of iFAST Corporation Ltd. Motley Fool Singapore contributor Sudhan P owns shares in iFAST Corporation Ltd.