iFast Corporation Ltd (SGX: AIY) released its Q2 2019 earnings over the weekend, and I was invited to attend the analyst briefing on the following Monday. Though this quarter’s numbers were not flattering — revenue registered a 0.9% year-on-year decline, operating profit fell by 8.1%, and net profit attributable to shareholders declined by 15.5% — there were several silver linings for the group that CEO Lim Chun Chung mentioned during the briefing.
iFast is a financial technology (fintech) company that operates a platform for the trading, buying, and selling of financial instruments and securities such as equities, fixed income, and unit trusts. The group operates in Singapore, Malaysia, Hong Kong, India, and China.
Investors have reason to feel optimistic about the group’s prospects as management remains intent on growing its business in China, and it’s also gunning for a digital banking license in Singapore. As of 30 June 2019, assets under administration (AUA) also hit a new all-time high of S$9.04 billion.
Digital banking license in Singapore
The Monetary Authority of Singapore (MAS) recently announced that it will be awarding five digital banking licenses to non-bank institutions, two being full licenses and three restricted licenses. This move follows a trend by other countries that have embraced the idea of digital banking in a move to liberalise the banking sector and allow non-bank players to gain a foothold. The original move was spearheaded by Europe several years ago, followed by Hong Kong last year, and now Singapore. Lim sees this as a great opportunity for iFast to leverage its strengths in order to clinch this license.
Note that iFast attempted to apply for a Hong Kong digital bank license last year, but the authorities decided to award the first wave of three licenses to Livi VB, SC Digital Solutions, and ZhongAn Virtual Finance. To be fair, there were 33 competitors vying for the licenses, and iFast stood only a small chance of clinching it. iFast is still in the running for future license awards, but the first batch needs to complete a year of operations before new licenses are given out.
Benefits of a digital banking license
iFast believes that should it clinch a banking license, it will be able to combine cash and wealth management to offer a more seamless product for clients. The license will also allow the group the opportunity to work with other players it may not have access to presently, thus broadening the scope and breadth of services offered.
Investors should note that iFast is currently negotiating with several players to combine forces to apply for the license. Ideally, iFast is looking for two partners, one of which should be a local partner (GIC-type company), while the other needs to have an international presence and clout. As the requirements for the full banking license are high (initial capital of S$1 billion), iFast intends to set up a separate entity to bid for the license, and the partners will each own stakes in this company.
Fundraising and future plans
The timeline for the license award in Singapore should be anything from 6-9 months, as the authorities need time to receive submissions by the end of August, review them, then consult and decide where to award the licenses. This process will probably end by mid-2020, and if iFast manages to clinch a license, the group may have to tap on either debt or equity (or a combination of both) to raise funds to grow the new division. In the interim, though, capital expenditure is not expected to be elevated, and the budget is still for S$10.5 million in spending for FY 2019.
In the second part of this earnings briefing, we’ll look at iFast’s plans for growing AUA and how it is navigating its way through the challenges in China.
The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. Motley Fool Singapore contributor Royston Yang owns shares in iFast Corporation Limited. The Motley Fool Singapore has recommended shares of iFast Corporation Limited.