iFAST’s Net Profit Plunges 79% for 2022: 5 Things Investors Need to Know

2022 was a tough year for most investors as stock markets around the world plunged.

The bellwether S&P 500 Index skidded nearly 20% while the technology-heavy NASDAQ Composite Index lost a third of its value.

Hong Kong’s Hang Seng Index fell by 16.5% last year as volatility rocked the major markets in light of high inflation and rapidly-rising interest rates.

Along with it, iFAST Corporation Limited (SGX: AIY) saw its business badly affected by market turbulence.

The fintech reported a sharp plunge in net profit as expenses rose significantly.

Despite the dour results, iFAST believes there is a better environment this year where it will be able grow both its revenue and net profit “substantially” moving forward.

Here are five things you need to know about the group’s plans and ambitions.

1. A painful set of earnings

For 2022, iFAST announced a 3.8% year on year rise in net revenue to S$118.2 million, buoyed by lower commissions and fees as market volumes plunged.

Expenses, however, surged by 33.7% year on year to S$103.8 million as the fintech spent to enhance its wealth management platform capabilities by improving the range and depth of investment products and services.

Staff costs, including share-based payments, also climbed by 30.3% year on year to S$56.8 million as iFAST handed out additional sales incentives to in-house wealth advisers and increased the group’s staff strength to support business expansion.

Coupled with an impairment charge of S$5.2 million arising from the group’s exit from its onshore Indian platform business, operating profit plunged 70.3% year on year to S$10.9 million.

Net profit fell sharply by 79% year on year to S$6.4 million.

2. A dip in AUA amid healthy fund inflows

Amid the turbulent market conditions, iFAST experienced an 8.3% year on year decline in its assets under administration (AUA), coming in at S$17.42 billion.

On the bright side, this number was a slight 2.5% increase from the S$16.98 billion reported in the previous quarter.

For context, S$17.42 billion is still 8.3% below the group’s all-time high AUA of S$19 billion attained at the end of last year.

Despite the weaker AUA numbers, iFAST continued to see healthy net inflows of S$2.1 billion for 2022.

For comparison, this level was more than twice 2019’s inflow of S$976 million but lower than 2021’s S$3.7 billion and 2020’s S$3.2 billion.

According to the group, the fund inflow metric is a better indicator of its long-term growth potential.

3. Bonds provide some relief

Source: iFAST 2022 Presentation Slides

While equity markets went through significant volatility and were shunned by investors, it was a different story for the bond markets.

iFAST saw the highest bond uptake in five years in the fourth quarter of 2022 (4Q 2022) with levels hitting S$400 million.

This level is more than double the usual quarterly subscription of less than S$200 million as can be seen in the graph above.

4. Commencement of contributions from Hong Kong ePension contract

Even as iFAST grapples with volatile market conditions and a surge in expenses, management remains optimistic of the Hong Kong division’s ePension project.

The expectation is for the project to be an important growth driver for the overall business from this year till 2025.

A critical success factor is an effective execution and an important aspect of this project is that it is not subject to market volatility.

iFAST is maintaining its original guidance for the project’s contribution.

In fact, the management is expecting “significant contributions” to begin as early as the fourth quarter of this year.

5. Maintaining its final dividend

On the dividend front, investors should be pleased to note that the group has maintained its S$0.014 final dividend.

With this declaration, 2022’s total dividend stands at S$0.048, unchanged from the dividend paid out in 2021.

At a share price of S$5.43, shares of iFAST offer a trailing dividend yield of 0.9%.

Get Smart: Short-term pain, long-term gain

iFAST unveiled its ambitious five-year plan back in November 2021 to much fanfare.

The fintech’s objectives have not changed since then as it still looks to achieve S$100 billion in AUA by 2028 and build a “truly global business model”.

After reporting a sparkling set of earnings for 2021, the group is facing short-term growing pains last year.

However, management is setting the group up for long-term success in building up its capabilities and hiring for the future.

These moves will stand iFAST in good stead once the upturn comes around.

It may look like the storm has yet to abate, but over time, the sun will shine brightly once again.

Disclosure: Royston Yang owns shares of iFAST Corporation Limited.

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