iFast Corporation’s 2021 Full Year Earnings: Total Yearly Dividend Grew Over 45%

iFAST’s growing like gangbusters.

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iFast Corporation (SGX: AIY) released its 2021 fourth-quarter and full-year earnings recently.

For those who may not know, iFAST runs 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 offers more than 14,000 investment products including unit trusts, bonds, stocks, and exchange-traded funds (ETFs), and services such as online robo-advisory portfolios and financial technology (fintech) solutions to its customers.

iFAST has three main business divisions, namely, the business-to-consumer (B2C) division, the business-to-business (B2B) division, and the emerging fintech solutions/business-to-business-to-consumer (B2B2C) division.

Overall, iFAST posted great financial results for the latest quarter and year.

Here’s How iFAST Perform for 2021

Let’s look at some highlights from iFAST’s latest announcement:

  • iFAST’s assets under administration (AUA) for 2021 grew 31.5% year-on-year to hit a record high of S$19.0 billion.
  • Net revenue (revenue earned after commission and fee paid or are payable to third-party financial advisers) for 2021 improved 31.9% year-on-year to S$113.2 million while recurring net revenue improved 30.3% to S$78.7 million.
  • Profit attributable to shareholders for 2021 surged 44.8% to S$30.6 million.
  • Due to positive operating leverage, iFAST’s profit before tax margin (based on net revenue) grew from 29.6% in 2020 to 31.6% in 2021.
  • Diluted earnings per share (EPS) for 2021 rose to 10.67 cents from 7.46 cents a year ago.
  • iFAST’s balance sheet remained rock-solid; as of 31 December 2021, the company had S$44.1 million in cash (includes investments in money market funds) with no debt.
  • Return on equity (ROE) for 2021 came in at 25.8%, a nice increase from the 21.8% seen last year.
  • Operating cash flow for the year rose from S$41.6 million to S$46.5 million, up 12%.
  • With capital expenditure (purchase of plant, equipment, and intangible assets) increasing from S$12.2 million in 2020 to S$19.6 million in 2021, iFAST’s free cash flow (FCF) declined from S$29.3 million to S$27.0 million.
  • The company proposed a final dividend of 1.40 Singapore cents per share, up 40% from the final dividend of 1.00 cent seen in the fourth quarter of 2020. For the full year of 2021, iFAST’s total dividend came in at 4.80 cents, 45.5% higher than 2020’s 3.30 cents.

iFAST’s FCF fell around 8% year-on-year, but I’m not too concerned as the company is investing in growth capital expenditure to position itself stronger in the coming years.

Source: iFAST FY2021 Earnings Presentation

An increase in the purchase of intangible assets mainly led to the higher capital expenditure for 2021. The rise in the purchase of intangible assets figure was largely due to:

  1. Acquired business rights resulting from the business transfer agreement with DWS Investments Singapore Limited for the transfer of its fund management business relating to its Singapore mutual funds platform (completed in July 2021), and
  2. Some project setup costs incurred for the Hong Kong pension project contract at end of 2021.

The business transfer agreement with DWS Investments Singapore also contributed to an incremental AUA of $485 million for iFAST.

On 30 January 2021, iFAST announced that PCCW was awarded the contract to design, build and operate Hong Kong’s eMPF platform. The MPF (Mandatory Provident Fund) is the city’s pension system and iFAST is the prime subcontractor for PCCW. The contract will contribute significantly to iFAST’s business (more on that later).

The fintech company’s dividend is well-protected. In terms of dividend payout ratio, 2021’s total dividend is just 51% of its diluted FCF per share of 9.39 cents.

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Looking Ahead

iFAST mentioned in its 2021 third-quarter earnings release that given its expectations that the growth rates of its overall Hong Kong business will accelerate in the next five years due to the e-pension contract, it has decided to share its targeted Hong Kong revenue and profit before tax (PBT) margins for 2024 and 2025.

For the two years, iFAST targets to achieve:

  • Gross revenue of over HKD1 billion (2024) and over HKD1.5 billion (2025),
  • Net revenue of over HKD800 million (2024) and over HKD1.2 billion (2025), and
  • PBT margin of over 15% (2024) and over 33% (2025).

In the previous quarter, iFAST also announced a five-year plan focusing on four key aspects, which are to:

  • Get bigger and better,
  • Accelerate Hong Kong’s growth,
  • Pursue more licences, and
  • Build a global business model.

Since we are one year down, iFAST has updated its plan to name it the four-year plan.

Source: iFAST FY2021 Earnings Presentation

On point 4 above, iFAST announced on 7 January 2022 its intention to acquire a UK-based bank, BFC Bank Limited.

The bank is expected to contribute some initial start-up losses for iFAST (based on its 85% stake in the bank, its estimated loss for 2022 is estimated to be around S$4.0 million). iFAST targets to achieve profitability for the UK bank starting 2024.

This is how iFAST envisions its fintech ecosystem to be once the digital bank comes onboard fully:

Source: iFAST FY2021 Earnings Presentation

In the next couple of years, iFAST expects its overall business to achieve robust growth in revenue and profitability between 2021 and 2025, with Hong Kong’s e-pension division expected to be the biggest driver from 2023.

Over the slightly longer term, iFAST reiterated that it remains committed to its previously stated AUA target of S$100 billion by 2028, which translates to a compound annual growth rate (CAGR) of around 27% from iFAST’s current AUA of S$19.0 billion.

Even though the CAGR seems aggressive, iFAST has put in place plans to achieve its target, and tailwinds in the burgeoning fintech space are in its favour. In Warren Buffett’s words, it’s important to be in businesses where tailwinds prevail rather than headwinds.

At iFAST’s current share price of S$6.00, it has a trailing price-to-FCF ratio of 64x and a dividend yield of 0.8%.

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Disclaimer: This information provided in this article is purely based on my opinions and is not intended to be personalised investment advice. The ideas discussed here are not recommendations to buy/sell any stock. The writer Sudhan P owns shares in iFAST.

23 Investing and Life Lessons From The Joys of Compounding Author Gautam Baid’s Sharing

Nuggets of wisdom from The Joys of Compounding author’s sharing on MoneyWiseSmart YouTube channel

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MoneyWiseSmart held an informative session with The Joys of Compounding author Gautam Baid on its YouTube channel early last year.

Here are some of my key takeaways from the awesome sharing by Gautam (screenshots below are from the deck shown during the talk).

1. Compound interest is the eighth wonder of the world. However, there’ll be this “valley of disappointment” one has to go through before we can see the magic of compounding happening.

2. Finding your North Star helps you to stick through the “valley of disappointment” and not give up.

3. You can find your calling by discovering your Ikigai.

4. The key to compounding is time and endurance. It’s not necessarily earning the highest returns.

5. But volatility may affect you from doing sound things in investing. However, the up-and-down movements in the stock market are normal, just like how day follows night and night follows day.

6. If you had invested in great businesses through the volatility, however, you would have done well across all business cycles. This is despite all the uncertainties in the market like rising interest rates, inflation, political tensions, etc. But bad businesses destroy wealth, even at low entry prices.

7. We shouldn’t be timing the market. Time in the market is what matters.

8. So what we should do is stay the course; focus is the key to success.

9. On why investing at a young age is powerful.

10. The +-x/^ formula to wealth.

11. How transaction costs, no matter how small they look, add up over time.

12. Always reinvest your dividends.

13. On bull and bear markets: Never let a bear market go to waste (reminded me of the recent March 2020 market crash).

14. On value traps: Everything trades at the level it does for a reason, so respect the market’s wisdom.

15. As investors, we need to adapt to changing times.

16. We should avoid psychological biases (by using a checklist and by keeping an investing journal).

17. Traditional accounting is not keeping up with the changing times. Always focus on unit economics for digital businesses and not on their accounting profits.

18. Investors who have a strong investing psyche have an edge and it is their competitive advantage. How you behave will matter far more than the fees you pay, asset allocation, or analyses.

19. Here’s how to sustain wealth after we have created it.

20. As you gain experience, you will develop a “feel” for the stock market over time (I totally agree with that).

21. Look beyond the short-term “suffering” when analysing companies that are investing for long-term growth.

22. Have humility and be a learning machine.

23. Have a constant learning mindset so you can be a lifelong learner.

If you would like to read the above in a Twitter thread, here’s the summary I wrote a year back on my Twitter account:

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Disclaimer: This information provided in this article is purely based on my opinions and is not intended to be personalised investment advice. The ideas discussed here are not recommendations to buy/sell any stock. The writer Sudhan P doesn’t own shares in any companies mentioned.