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iFAST Corporation Limited Q1 2019 Earnings Hit by Weaker Revenues and Higher Expenses

iFAST Corporation Limited (SGX: AIY) (iFast) released its first quarter of 2019 (Q1 2019) earnings on Saturday morning. iFast is a financial technology company with an internet-based investment products distribution platform. The group has a presence in Singapore, Malaysia, Hong Kong, China and India, and operates two main divisions, one which caters to business to consumers (B2C) and another which caters to businesses (B2B).

The group reported a weak set of earnings for Q1 2019 due to lower revenues and also higher expenses, even though their assets under administration (AUA) hit a new record high of S$8.75 billion as at 31 March 2019.

Here are nine takeaways from iFast’s latest earnings update:

  1. Net revenue increased by 4.4% year-on-year to S$15 million, despite a fall in gross revenue of 12.2% year-on-year due to poor financial market conditions. The fees and commissions payable to third-party financial advisers fell by 26.6% year-on-year, due mainly to a decrease in front-end commission income from the unit trust business during the quarter.
  2. Operating profit, however, declined by 22% to S$2.2 million because of higher depreciation expenses, increased staff costs and higher amortisation of intangible assets. Profit attributable to shareholders tumbled 41.8% to S$1.6 million due to financing costs (from the loan taken up by iFast to bid for the Hong Kong virtual banking license), higher share of losses from associates (Providend) and higher tax expenses.
  3. The balance sheet remained robust with cash and investments totalling S$61.5 million. Bank loans declined from S$37.3 million to S$13.6 million as the company paid off some of the debt taken up for the purpose as mentioned earlier. Net cash stood at S$47.9 million as of 31 March 2019.
  4. Even though net profit declined, operating cash flow generation remained strong at S$2.9 million. Capital expenditure on intangible assets was S$4.8 million and was carried forward from purchases made in Q4 2018. This resulted in negative free cash flow of S$1.9 million for the quarter.
  5. An interim dividend of 0.75 Singapore cents was declared, similar to last year. Trailing 12-month dividend stands at 3.15 Singapore cents. At iFast’s latest closing price of S$1.17 as of 26 April 2019, this translates to a dividend yield of 2.7%.
  6. The group’s AUA started off at S$8.05 billion at the beginning of 2019 due to heightened stock market volatility and poor financial market conditions, but managed to end the quarter at a new record high of S$8.75 billion, largely due to a recovery in March 2019.
  7. iFast’s non-recurring net revenue dipped by 13% year-on-year during Q1 2019, due to a decrease in front-end commission income from lower unit trust business. This was, however, offset by increases in transaction fees as a result of clients’ increased trading volumes in bonds, ETFs and stocks.
  8. For Malaysia, the retail bonds platform for B2B and B2C customers was launched in April 2019. This enables retail investors in Malaysia to invest in bonds with as low as RM 1,000, thereby significantly lowering the threshold at which investors can start investing in bonds. This initiative is the first of its kind in Malaysia, and iFast believes it will contribute positively to the Malaysian bond business going forward.
  9. Negative market sentiment has caused the China business to slow down in recent quarters, as there were significant client redemptions in Q4 2018 following the weak market performance in late 2018. However, the Chinese economy has displayed some initial signs of stabilising activity recently. iFast China has increased the number of fund houses and funds carried on its platform to 75 and 3,300 respectively, and will be putting forth a Private Fund Management License application to be able to issue Private Funds with discretionary mandate for accredited investors.

iFast reported a downbeat set of earnings for this quarter, as volatility in stock markets rocked the company and caused AUA to fluctuate wildly. Adverse financial market conditions may affect the group’s profitability in the short-term, but in the long-term, there is good potential for iFast to continue to grow its AUA in line with the growth of financial products and economies in Asia.

The group continues to invest in building its capabilities and has demonstrated its commitment to growing slowly and steadily. Barring unforeseen circumstances, the group expects its revenue and profitability in Q2 2019 to show improvements compared to that of Q1.

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The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. The Motley Fool Singapore recommends shares of iFast Corporation. Motley Fool Singapore contributor Royston Yang owns shares in iFast Corporation.