Temporary pause in operating leverage
2Q22 results hit by impairment and higher costs
2Q22 revenue affected by tough market conditions. Net revenue grew 13.3% y-o-y (+6% q-o-q) to S$29.9m in 2Q22. 2Q22 net revenue included an initial contribution of S$3.9m from iFAST Global Bank in UK. Excluding this, net revenue eased 1.6% y-o-y and 7.9% q-o-q. A broad decline in the value of investment products has offset positive net inflows of S$0.59bn and S$1.26bn in 2Q22 and 1H2022, respectively. Overall, 1H22 revenue accounts for 45% of our full-year numbers, slightly below expectations. A second interim of 1.10 Scts was declared for 2Q22, similar to 2Q21.
Net loss of S$2.7m, dragged by S$5.2m impairment charges on India platform business and higher costs. iFAST India Holdings, a 41.5%-owned associate company of the group, has decided to exit its onshore platform service business in India and pivot to focus on providing global fintech solutions. The Securities and Exchange Board of India (SEBI) announced the discontinuation of the usage of pool account for mutual fund transactions with effect from 1 July 2022. This new regulation has undermined the ability of iFAST India to provide efficient online platform services to its clients.
With the restructuring of the India business, the group has provided a one-time impairment allowance of about S$5.2m. No further impairment charges are expected for the India business. Coupled with higher operating expenses and initial operating losses for iFAST Global Bank, the group reported a net loss of S$2.7m in 2Q22. The UK bank is expected to turn profitable in 2024. FY22F net loss is projected to be about S$4m.
Excluding the impairment loss, 1H22 pretax profit of c.S$11m accounts for c.38% of our full-year numbers, below our and consensus’ forecasts.
Temporary pause in operating leverage; expect revenue and profitability to reach new highs in 2023. Operating expenses are increasing, even as revenue growth moderates in 2022, as the group prepares for the ePension business, which will become operational from 2023 and would contribute more significantly from 3Q23 onwards, vs. its guidance in April of contribution starting in 4Q23. No change in guidance in terms of numbers for the ePension business. The group will provide more updates in the subsequent quarters. Overall, iFAST is expected to achieve operating leverage from 3Q23 onwards as contribution from the ePension business starts to increase.
In the mid to longer term, iFAST is also positioning itself for opportunities arising from a more globalised wealth management and digital banking business model. The group will continue to invest and prepare for its next phase of growth under its four-year plan.
AUA declined 5.1% q-o-q, +0.8% y-o-y. The group’s assets under administration (AUA) declined 5.1% q-o-q to S$17.68bn as at 30 June 2022 but rose 0.8% on a y-o-y basis. In 1Q22, AUA eased 2% q-o-q but surged 15.6% y-o-y.
Cut earnings for FY22F/23F by 60%/4%; maintain HOLD call with lower TP of S$4.08. After factoring in the impairment charges and higher operating costs, we have cut FY22F/23F earnings by 60%/4%. We have also imputed a lower AUA growth rate of 5% y-o-y for FY22F, vs. 15% previously. Our DCF-based TP is reduced to S$4.08 (previously S$5.42) on the back of the cut in earnings and lower terminal growth rate assumption of 3% vs. 4% previously. Maintain HOLD call.
