Here’s Why iFAST Corporation (AIY.SI) Shares Plunged 31%

It failed to get the Digital Banking License, but that's half the story told. Here's what you exactly need to know about iFAST's other side of the story.

First, the bad news.

Last week, the Monetary Authority of Singapore (MAS) awarded the Full Digital Banking licenses to Internet companies SEA Ltd and Grab-Singtel partnership. 

And gave Digital Wholesale Banking licenses to China’s Ant Group and another group led by Greenland Financial.

But iFAST Corporation Ltd (AIY.SI) and its Chinese partners, Yilion Group and Hande Group failed to get their Digital Wholesale Banking license.

The Digital Wholesale Banking license allows iFAST to operate like a bank, lending money to SME companies.

People think having this license is a huge game changer for iFAST.

That’s why the market panicked and iFAST shares plunged 31% from their peak earlier this week. 

But that’s half the story told.

So here’s the good news for long-term investors looking to build their wealth, this is what people are not paying attention to.


iFAST’s Strong Growth Comes From its ‘Network Effect’

Thanks to its “network effect”, iFAST will only get bigger. 

With or without the license.

I’ll explain.

iFAST’s business model is very simple. 

Each time you buy a unit trust from its online platform, the company charges you a small transaction fee, then a yearly platform fee to “safekeep” the financial products for you. 

Unit trusts are funds professionally managed by an investment company. It’s also commonly known as a mutual fund. 

The company also takes a cut from the investment companies selling their unit trusts on its platform, which is called distribution fees.

The best part of the business is that as more people and investment companies use iFAST’s platform to buy and sell financial products, the bigger it gets. 

And the more money iFAST makes. 

This creates a very strong “network effect”.

In fact, iFAST’s assets under administration (AUA) grew massively and hit SGD12.6 billion in Sep 2020.

AUA is the total amount of assets iFAST holds for investors after they’d buy products through iFAST’s platform. 

And this amount alone is larger than many other investment companies in Singapore.

Source: Company Reports and Presentation

You see, iFAST is a SGD780 million online financial supermarket. 

It sells one of the most popular investment products in Singapore — unit trusts, through its online platform, 

iFAST is already one of the fastest growing businesses. The company started only during the dotcom of 2000. And over the past 20 years, its net sales hit a record of SGD65 million. Most of it is recurring.

What’s even better is it’s net sales over the past nine months achieved SGD61.5 million. 

Net sales is the fees which iFAST earns, after paying commissions to its third-party financial advisors. 

You see, what iFAST has that competitors like Aviva Navigator and Phillip Securities online platforms sometimes lack is this. 

In my opinion, iFAST’s platform makes it convenient for everyday investors to pick from its huge library of 9,000 products, including unit trusts, bonds, stocks and ETFs

Once you enter iFAST’s website, all the information is immediately packed right in front your eyes.

You can say it’s like the Amazon for everyday investors

And because iFAST doesn’t own a physical store, it saves much of its earnings on rent.

And all its excess cash can be used to invest in technology systems and labor — two of the most important things a financial company needs to grow.

That’s why iFAST is a capital-efficient business.

Since its listing in 2014, iFAST’s average return on shareholders’ equity (ROE) is around 14.6%. 

ROE measures how much a business makes back for every dollar invested. 


With or Without a Digital Banking License, iFAST’s Growth is Inevitable

iFAST is a heavy digital adopter. 

That’s why people think it’s important for iFAST to get the digital banking license. 

iFAST can then offer almost what all banks can do — from selling financial products, insurance, to moneylending, except without the hassle of opening physical branches.

Yet without the license, the company continues to pull in more people onto its platform.

In fact, during the pandemic crisis, it still received net new money of SGD2.3 billion, that’s triple the amount over the same period a year ago.

Now, iFAST shares sold-off earlier this week. But that’s after their share price soared over 370% since March this year. 

That dwarfed Straits Times Index (STI) tiny returns of 2.3% over the same period. 

Source: Yahoo! Finance

What’s even better, is iFAST has been growing their dividends. Its dividends grew from 2.79 cents per share in 2015 to 3.15 cents per share last year. 

Even during its 9M2020 financial results, through the pandemic crisis, dividends paid is 2.30 cents per share, higher than the previous year.

Even if iFAST fails to get the license, it isn’t a deal breaker for them. 

Its gains from its online supermarket aren’t over. 

That’s because Singapore is poised to be the next biggest financial hub in Asia, after Hong Kong. 

With MAS’s move to develop and grow the country’s reliable financial system, this is going to attract even more money from the region. 

That should be a huge tailwind for iFAST’s growing business. 

As far as I’m concerned, no other players could match iFAST’s convenient online  financial supermarket. 

And everyday investors are likely to turn to iFAST for their investing needs. 

Sometimes, investing can be simple. 

Always here for you,

Willie Keng, CFA

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