iFast, analysts refute short-seller claims that business is unsustainable

BANK and wealth management platform iFast Corporation has refuted claims made against the company in a recent short-seller report.

Among other things, the report by Sakura Research called into question the sustainability of iFast’s Hong Kong ePension division’s revenue, the health of the company’s UK digital bank, as well as the company’s profitability as it grows its assets under administration (AUA).

iFast’s Hong Kong-based subsidiary, iFast ePension Services, launched Occupational Retirement Schemes Ordinance (Orso) e-pension services, a digital pension solution for Hong Kong Orso pension schemes in June last year.

In its latest earnings for the half year ended Jun 30, 2024, the company attributed the 58.1 per cent rise in revenue it posted to increased contributions from its ePension division in Hong Kong and improvements across iFast’s wealth management platform business.

In a call with The Business Times, a Sakura Research spokesperson said iFast’s Hong Kong ePension division will observe a 70 to 80 per cent drop in revenue after the project is fully implemented in 2025.

Comparing the ePension project to other IT projects undertaken by solutions providers such as Silverlake Axis, the spokesperson said there is typically a fall in revenue after the project enters a “maintenance phase”.

The spokesperson declined to be named, and did not disclose any other information about Sakura Research except to say that they are a group of traders and analysts investing their own and their friends’ money.

Sustained revenue

In response to the report, an iFast spokesperson said the company has continued to guide for revenue from its ePension division to be sustained over a contract period of seven years.

At its latest earnings briefing, iFast chief executive Lim Chung Chun said revenue recognition for the ePension division will increase as overall onboarding level goes up.

“(The) first three quarters of this year is probably a similar kind of revenue, and then that starts to increase to a higher level, maybe (at the) end of this year going into next year,” he said, adding that he foresees additional increases in revenue going into 2026.

Lim added that so far, the first trustee has been onboarded to the ePension project, with the second expected to be officially on board by end-July.

Industry analysts also cast doubt on Sakura Research’s claims.

In a July report, CGS International analyst Andrea Choong noted that the two trustees account for only about 1 per cent of the Hong Kong Mandatory Provident Fund’s net asset value as at end-June 2024.

“There are another 10 trustees to be onboarded over Q4 2024 to Q4 2025,” she added.

Banking on growth

Aside from the Hong Kong ePension scheme, Sakura Research also raised doubts over iFast’s ability to bring its UK digital bank to profitability.

The spokesperson drew a comparison between iFast Global Bank and Grab and Singtel’s GXS Bank, which has continued to generate losses.

Furthermore, the research house claimed that the bank’s main revenue driver is in the remittance space, which has had intense competition from the likes of Revolut and Wise.

However, UOB Kay Hian (UOBKH) analyst Heidi Mo said these banks may not be a fair comparison.

Instead, she noted that the company is focused on both transaction banking and personal banking, where the customer base is larger and revenue from loans is generated. She added that iFast Global Bank’s net interest margin stands at about 1 per cent.

iFast’s Lim also said at its Q2 earnings briefing that it aims for iFast Global Bank to break even in the fourth quarter of this year.

As for iFast’s profitability and cash flows, Sakura Research said the company has experienced a fall in operating profit as a ratio to AUA. In the company’s 2023 annual report, this figure fell from 0.209 per cent in 2021 to 0.047 per cent in 2023.

However, UOBKH’s Mo noted that the company’s profit before tax for the latest half year stood at S$37.9 million, while AUA stood at S$22.37 billion. This brings the ratio back up to 0.169 per cent, which is higher than the 0.081 per cent in 2022.

She said that lower profitability in 2022 could be attributed to the impairments that iFast took on its India platform business as well as the acquisition of BFC bank in the UK to form iFast Global Bank.

The company has also incurred higher operating expenses to build up the Hong Kong ePension division.

Lim said that as iFast ramps up overall headcount for the project, it expects to incur higher operating expenses, although revenue should increase as well.

UOBKH’s Mo also noted that the company has been conservative in its guidance, adding that she “can’t help but have some faith” in the company’s plans for its UK bank business as well.

At the Q2 earnings briefing, analysts pointed out that iFast’s Hong Kong business had already met about 63 per cent of its full-year profit before tax guidance and asked if it would adjust its targets upwards.

Lim replied that the company expects to comfortably exceed the guidance, although they intend to leave the guidance unchanged from when it was last updated in February 2024.

In response to queries from BT, iFast declined to comment on most of the allegations made by Sakura Research.

However, the spokesperson added that it had received an offer from an unnamed source in early July to purchase a research report on the company for US$222,000. iFast’s management declined the offer.

On Aug 21, the company received an email from Sakura Research about its report, after it had been shared online.

Sakura Research told BT that it did not offer the report to iFast.

It also confirmed that it contacted iFast’s investor relations team and several directors to check the report and respond to questions raised in the report.

Since the short-seller report was published on Aug 19, iFast shares have fallen 3 per cent to S$7.07 as at Aug 30. In the year to date, its shares have fallen by 13.9 per cent.