iFAST acquires a digital bank and what's next?
1. I was interviewed on MoneyFM 89.3 this morning about the recent big news involving $IFAST(AIY.SG$ iFAST acquiring a digital bank, BFC Bank. I'll repeat some key points here if you are following this development. https://omny.fm/shows/moneyfm-morning-show/companies-to-watch-ifast-to-obtain-a-banking-licen
2. First of all, give some credit to iFAST for taking a big step to becoming a global company. This is the first time iFAST ventured out of Asia and getting a foothold in the UK. It is rare for a Singapore company to go global. Of course, a lot more has to be done to be truly global but who says we can't celebrate every milestone along the way?
3. An interesting question asked was why did iFAST acquire a bank in the UK and not in Asia. I think it is because iFAST has presence in the region and has applied for digital banking license in Singapore, Hong Kong and Malaysia. Unfortunately iFAST didn't succeed in SG and HK while it is still in the running for Malaysia's license. So probably iFAST felt they were ready in Asia to launch a digital bank than to acquire one.
4. It could also be that there isn't a suitable target in Asia even if iFAST wants to acquire one. Digital banks are pretty new in Asia and there aren't many existing ones for purchase.
5. And iFAST has no presence in Europe. Buying a digital bank in UK would give them a foothold in that region quickly. The digital banking culture is stronger in the UK than in Asia and iFAST can learn the ropes from BFC. This could even increase the chance of iFAST getting a digital banking license in Asia considering that they will have the experience in running one. I missed out this point during the interview.
6. So why is iFAST so keen on acquiring a digital bank? iFAST calls the banks the 'foundation layer'. Here's my interpretation. Deposits are often a customer’s first interaction with the finance industry and there are many more depositors wanting to open a bank account than an investor opening a wealth management account. Every investor needs a bank account but not every depositor needs an investment account.
7. The acquisition of a depositor is easier and cheaper than an investor. Many banks subsequently develop the trust and relationships with the depositors and cross sell other financial services and products to them. With a digital bank, iFAST could do the same and widen its customer base more cost efficiently. In other words, iFAST could expand the total addressable market significantly.
8. Some investors are concerned about the losses of BFC and a 1.62x PB valuation is on the higher side (Barclays is at 0.5x). There will be some short term drag on iFAST's results but the other business segments in Asia are growing strongly (>30%). This means iFAST would easily be profitable and cover the losses in BFC. Especially the ePension business in HK would give iFAST a significant boost to its financial results from 2023-24 onwards. I don't expect BFC to contribute to iFAST or any synergy could be reaped in the next few years.
9. The final question was about how do I see iFAST's current share price and where would it go. My take is that the share price has done very well in the past two years (up a few folds) and a lot of the future growth has been factored in the share price today. Hence, I don't see the share price as undervalued even though a handful analysts were calling for a target price of $11. They might be right and the share price edge towards that target but I demand more margin of safety. I would hold or take partial profits if I have bought the stock at cheaper prices though.
10. I am not a licensed professional. Please don't take my words as financial advice or recommendation. Build your own views and make your own decision.
2. First of all, give some credit to iFAST for taking a big step to becoming a global company. This is the first time iFAST ventured out of Asia and getting a foothold in the UK. It is rare for a Singapore company to go global. Of course, a lot more has to be done to be truly global but who says we can't celebrate every milestone along the way?
3. An interesting question asked was why did iFAST acquire a bank in the UK and not in Asia. I think it is because iFAST has presence in the region and has applied for digital banking license in Singapore, Hong Kong and Malaysia. Unfortunately iFAST didn't succeed in SG and HK while it is still in the running for Malaysia's license. So probably iFAST felt they were ready in Asia to launch a digital bank than to acquire one.
4. It could also be that there isn't a suitable target in Asia even if iFAST wants to acquire one. Digital banks are pretty new in Asia and there aren't many existing ones for purchase.
5. And iFAST has no presence in Europe. Buying a digital bank in UK would give them a foothold in that region quickly. The digital banking culture is stronger in the UK than in Asia and iFAST can learn the ropes from BFC. This could even increase the chance of iFAST getting a digital banking license in Asia considering that they will have the experience in running one. I missed out this point during the interview.
6. So why is iFAST so keen on acquiring a digital bank? iFAST calls the banks the 'foundation layer'. Here's my interpretation. Deposits are often a customer’s first interaction with the finance industry and there are many more depositors wanting to open a bank account than an investor opening a wealth management account. Every investor needs a bank account but not every depositor needs an investment account.
7. The acquisition of a depositor is easier and cheaper than an investor. Many banks subsequently develop the trust and relationships with the depositors and cross sell other financial services and products to them. With a digital bank, iFAST could do the same and widen its customer base more cost efficiently. In other words, iFAST could expand the total addressable market significantly.
8. Some investors are concerned about the losses of BFC and a 1.62x PB valuation is on the higher side (Barclays is at 0.5x). There will be some short term drag on iFAST's results but the other business segments in Asia are growing strongly (>30%). This means iFAST would easily be profitable and cover the losses in BFC. Especially the ePension business in HK would give iFAST a significant boost to its financial results from 2023-24 onwards. I don't expect BFC to contribute to iFAST or any synergy could be reaped in the next few years.
9. The final question was about how do I see iFAST's current share price and where would it go. My take is that the share price has done very well in the past two years (up a few folds) and a lot of the future growth has been factored in the share price today. Hence, I don't see the share price as undervalued even though a handful analysts were calling for a target price of $11. They might be right and the share price edge towards that target but I demand more margin of safety. I would hold or take partial profits if I have bought the stock at cheaper prices though.
10. I am not a licensed professional. Please don't take my words as financial advice or recommendation. Build your own views and make your own decision.
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Bull Run : Sell to Gain short term profit and buy after it drop to 7.5