Should you buy iFast after its 60% plunge?

What happened?

If you have been following fintech stocks globally, you would have noticed the sharp fall in their share prices in recent months.

Closer to home, the share price of iFast has fallen sharply by more than 60% from its 52-week high of above $10.

The stock took a further beating after it reported a surprise loss in its 2Q22 results, bringing the share price down by another 5% on 25 July. 

This marks a sharp reversal from 2021, where it was one of the best performing stock on the Singapore exchange. 

Let’s take a look at what is driving the most recent correction. 

What we learnt from iFast 1H22 results

#1 – 2Q22 losses largely due to one-off impairment

iFast reported a loss of S$2.7 million in 2Q22, reversing from a net profit of S$7 million in 2Q21.

This was partly driven by a S$5.2 million impairment taken for its India business, after iFast decided to scale back its presence in the market.  

The decision was taken after the Securities and Exchange Board of India announced the usage of pool accounts for mutual fund transactions will no longer be allowed from 1 July 2022. 

This would effectively prevent iFast from providing its online platform services to customers in India in an efficient manner. 

#2 – Management expects profit to improve

iFast CEO Lim Chung Chun shared that he expects the company to be profitable again from 3Q22, albeit with “a substantial decline” in profitability for the rest of the year. 

What is also noteworthy is that he expects the company to see a “robust ramp-up” in overall profitability from 2023 to 2025.  

This is partly due to the increasing contribution from the ePension project in Hong Kong, which is expected to begin in 4Q23. 

Earlier in April, iFast had shared that it expects the Hong Kong business to achieve a gross revenue of more than HKD 400 million in 2023. This will increase further to more than HKD 1.6 billion in 2025.

This is expected to drive a similar increase in profit. iFast targets to achieve a profit before tax (PBT) for its Hong Kong business of more than HKD 100 million in 2023. This will increase further to HKD 500 million in 2025.  

#3 – AUA declined with fall in portfolio value

One of the key metrics that investors track for iFast is the asset under administration (AUA).

The bad news here is that AUA declined by 5.1% compared to the previous quarter to reach S$17.7 billion.

This was largely driven by a decline in the value of various investment products. After all, we have seen a sharp decline in the market value of global equities and fixed income products over the past few months. 

The good news? iFast is still seeing positive net inflows of S$0.59 billion in 2Q22. 

#4 – Sticking to its target

Despite the near term hiccup, iFast is sticking to its earlier announced 4-year plan which targets to bring the group’s asset under administration (AUA) to S$100 billion by 2028. 

This is expected to be driven by growth in markets outside of Singapore, particularly Malaysia, Hong Kong and China. 

Also, the UK is expected to contribute more to the company’s AUA following its acquisition of a majority stake in BFC bank.

Collectively, these markets could surpass Singapore and contribute towards the bulk of iFast’s AUA. 

On the other hand, Singapore’s share of AUA could fall to 30-40% from above 70% currently. 

What would Beansprout do?

We’d be staying away from iFast for the time being as the challenges are likely to stay in the coming months. 

iFast CEO admitted that the market environment is “very tough” in the near term, as the average volumes for stock broking and unit trusts have been coming down. 

Based on consensus earnings forecasts, iFast is still trading at a P/E of about 42x (Source: Yahoo Finance).

That’s a whopping premium compared to the Singapore market average P/E ratio of about 13x. 

Also, with the Fed aggressively raising interest rates, tech stocks might continue to face pressure. 

You’d need to take a long term view and believe that the company’s profit would turnaround sharply with the increasing contribution from Hong Kong to consider having iFast in your portfolio currently.