iFast looking to balance dividend growth with expansion opportunities

IFAST Corporation is expecting a gradual increase in its dividend for this financial year, but has not committed to a firm dividend payout ratio, as it looks to balance dividend growth with ensuring it has enough retained earnings to explore opportunities.

Its chief executive Lim Chung Chun said at an earnings call on Monday: "We did increase the dividend in the last two quarters, and our current thinking is that we will see some gradual increase in dividend for this current year as well."

The wealth management platform announced its FY2020 financial results on Friday, in which net profit for the full year more than doubled. Total dividend for FY2020 rose to 3.30 cents per share, up 4.8 per cent from FY2019.

The company had a dividend payout ratio guidance of around 60 per cent in earlier years, but it stopped giving a definite percentage in the last one to two years, Mr Lim said.

"We feel that we shouldn't tie ourselves so much at a time when there are quite a bit of opportunities for us to explore."

One such opportunity is digital banking. Mr Lim noted that even though iFast was unsuccessful in its licence application in Singapore, there are still opportunities elsewhere.

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The company has been studying the possibility of a digital banking licence in Malaysia; Mr Lim said iFast will be submitting an application, with further details to be provided later.

He believes iFast's Singapore business, which is the largest revenue contributor, would continue to see "good momentum" this year, and noted that growth did not come just from trading volumes, but also inflows into unit trusts, with overall unit trust assets under adminstration (AUA) continuing to grow, thus providing recurring income.

In relation to the eMPF platform in Hong Kong, Mr Lim said iFast is unable to give details now, as certain details are still pending finalisation.

It was announced last month that PCCW Solutions won the tender for Hong Kong's eMPF platform. iFast is PCCW Solution's prime subcontractor for a category that includes Mandatory Provident Fund (MPF) scheme operation services, transformation services and user delivery services.

"At this point, I would just say that it will be a very material impact when the whole thing is finalised," Mr Lim said. He noted that the company's role in the platform would be seen more from 2023 onwards.

Within the Business-to-Business (B2B) business segment, Mr Lim said the group's in-house advisory arm, iFast Global Markets (IGM), which started four years earlier, has shown "very good progress" in the last year, and is a significant contributor to the overall group.

IGM accounted for 13 per cent of iFast's B2B AUA as at Dec 31, 2020.

Mr Lim said iFast felt it was important to start IGM, as advisors in markets such as Singapore and Hong Kong focused more on insurance products. He added that iFast believes in a wealth-management model that focuses on advising on simple investment products such as unit trusts and exchange-traded funds (ETFs), as opposed to a business that tends to focus on high upfront commissions.

Mr Lim also observed that markets such as the United Kingdom and Australia have banned commissions and trailer fees, a form of commission for mutual funds and unit trusts. Trailer fees are paid by product providers, such as fund managers, to distributors.

"The results we have seen in countries like the UK and Australia, is the banning of commissions led to a faster adoption of investment platforms as the way of doing their business in the advisory channel," he said, adding that iFast would not mind if regulators moved to ban trailer fees.

However, he does not think the scrapping of trailer fees is likely to happen over the next few years in iFast's key markets.

DBS on Monday raised its target price for iFast to S$7.64 from S$6.40, while maintaining its “buy” call. Shares of iFast last closed on Monday at S$6.21, down S$0.29 or 4.46 per cent.

Assets under administration (AUA) for iFast grew at a two-year (FY18-20) compound annual growth rate of 34 per cent, compared to 10 per cent over FY17-19 for the industry, the DBS report noted.

“With the expanding range of products and services, coupled with the boost from Covid-19 that helped to accelerate the rate of digital adoption, we expect AUA to grow by 30 per cent in FY21 forecasted and 20 per cent in FY22 forecasted,” analyst Ling Lee Keng wrote.

The report further noted that iFast's growth in profit was substantially higher than the growth in revenue, which is an indication of the positive operating leverage and scalability of the group’s business model.