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iFast tripping on the fast lane...
From a bank application, a placement, a banking acquisition and the shuttering of their India's operation
iFAST Corporation Ltd which provides investment products and services in Singapore, Hong Kong, Malaysia, and China has always been on the “fast lane” for the past 2 years.
From SGD 1.00 in 2020, it rose to a 10 bagger at SGD 10.10. Even with the recent rout, the share price is still up a cool 300% from 2020!
iFAST’s management has never shy away from being aggressive and fast.
Let’s take their recent years foray into getting a banking license in Singapore and Malaysia. Both attempt failed in the face of strong competition but that did not deter the iFAST’s management.
The decision to do a placement at SGD 7.50 to raise SGD 150m to purchase the a UK bank is another aggressive move to move towards being a bank.
Somehow, I can understand the lure of wanting to be a bank. By being a bank, you are part of the establishment.
Which management do not want for their company to be part of the establishment but is that what the market wants for the company?
Perils of being a bank:
By owning a bank, iFAST will ultimately be burden with the regulatory cost of holding on to a bank in UK. During the pandemic, UK government directed that banks like HSBC and Standard Chartered1 are barred from giving dividend to their shareholders. That is the risk you hold when one domicile their business in one place and then conduct majority of their business in another.
On 23rd July 2022, iFAST decided to exit its onshore platform service business in India which resulted in a one-time estimated impairment allowance of SGD 5.2m. This is no fault of iFAST as the Securities and Exchange Board of India’s discontinuation of the usage of pool account for mutual fund transactions meant that their business is no longer scaleable.
iFAST share price has dropped by another 5% when the market open on the 25th July 2022.
As a reference, iFAST’s current path mirrors that of Charles Schwab (SCHW) in the US.
Similarly, they started as brokers and then diversified into banking operation.
SCHW’s Schwab Bank has become one of US largest bank by deposits bringing about a main generator of revenues and profits. SCHW has become the dominant player in a key segment of the custody market, servicing independent registered investment advisers and their clients. In wealth management, SCHW is moving beyond its affluent mass-market clients to high-net-worth and even ultrahigh-net-worth investors. SCHW has also eliminate fees for online stock and exchange-traded fund trades and convince clients to use robo-advisers rather than humans for financial planning and portfolio management.
That seems like a roadmap to follow but it is “ahem” hard to fathom how iFAST could do all that with a UK banking license. It would have been possible with a ASEAN banking license. Maybe, they should have followed SEA example of acquiring an Indonesian bank instead.
Unlike the US, Asia is inherently complicated with many countries, different jurisdictions, differing governing framework, and political inclination.
Overall, the risk from iFAST at current valuation is no longer about their growth but the valuation metric that investors would want to use going forward.
If investors view iFAST as a bank, then valuation would follow a bank which is in the multiple of equity. That meant that iFAST could be valued at 1x - 1.2x book value per share which meant a large drop from current share price.
If investor is willing to view iFAST as SCHW, then they could be willing to value iFAST at 20x PE or at 3x book value per share. The contraction in such a scenario would be smaller.
The only path forward to maintain their current valuation would have been that they can continue to grow that asset under administration (AUA) and take market share from their competitors. But AUA will also be buffeted by a slowing stock market and lesser available cash.
Overall, the share price seems to be more on the downside till the market find the best appropriate way to value it.
Most of HSBC and Standard Chartered revenue came from Asia while their banking license domicile in the UK.