IFAST Corporation Ltd
SGX:AIY
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IFAST Corporation Ltd
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Okay. Good morning, ladies and gentlemen. Welcome to iFAST Corp's Second Quarter 2020 and First Half 2020 Results Presentation. I trust that all of you are staying safe and are healthy during these times. My name is Jean Paul. I'm from the iFAST Corp corporate comps team.
Before starting with my portion of the presentation, which is on the key summary, I will also like to share that we have Mr. Lim Chung Chun, CEO and Chairman of iFAST Corp, with us today; as well as Mr. David Leung, our CFO, who will be presenting section 1 and 2 later on. And as my colleague [ Chee Wai ] has shared in the chat as well, you then can ask questions during the Q&A segment after our presentations. So I'll begin with a key summary.
So on Slide 4, the group reported a record quarterly net profit of $4.53 million in second quarter, which is an increase of 84.7% year-on-year compared to second quarter of last year. So this was achieved on the back of a 21.2% year-on-year increase in net revenue and a 25.8% year-on-year increase in gross revenue.
For first half this year, the group's net profit grew 101.4% year-on-year to $8.16 million, which is supported by a 23.1% year-on-year increase in net revenue and a 33.2% year-on-year increase in gross revenue. The improvement in the group's business shows that the group has been a beneficiary of increased digital adoption in the wealth management industry. The improvements have been seen from both our B2C and B2B businesses. The net inflows of client assets registered a record $1.25 billion in first half, pushing the group's AUA from $10 billion at the end of last year to a new record high of $11.15 billion as of 30th of June this year.
Going forward, an acceleration of digital adoption in the wealth management industry will continue to be a positive factor underpinning the growth prospects of the group. The group will continue to work hard on cementing its position as a leading fintech wealth management platform.
Barring unforeseen circumstances, the group expects the full year 2020 performance to show healthy growth in profits and revenues compared to 2019. For the second interim dividend for second quarter of this year, the directors declared a dividend of $0.75 cents per ordinary share, which is the same as the second interim dividend for our second quarter of last year.
On the next slide, the wealth management industry is undergoing rapid change, driven by the acceleration in digital adoption and transformation in recent times. As a leading fintech wealth management platform in Asia, the increase in the pace of digitalization in the wealth management industry has led to a rise in our business volume across both B2B and B2C divisions. The net inflows of client assets into our platforms hit a record high of $656 million in the second quarter of this year.
Subscription, excluding switching, for the group grew to a record high of $2.39 billion in second quarter, and strong growth were seen in the total sales, excluding switching, for the Singapore operation in first half 2020. We have a chart on this later on that we will be sharing. Greater digital adoption in the wealth management industry will continue to bode well for the group's online-based business model going forward.
This slide shows our group AUA growing by 11.5% year-to-date and 23.4% year-on-year to a record high of $11.15 billion as at 30th of June 2020.
Here we have our usual chart on the net inflows firstly and the subscription, excluding switching. So as we shared just now, the net inflows numbers have hit a record high for us in first half of this year. So net sales in the first Q of 2020 was already at the very a high level of $590 million. And in second quarter, we saw a further increase in net sales of $656 million at the group level. Similarly, for subscription, excluding switching, in the first quarter, the number stood at $2.23 billion. And in second quarter, it was further -- it further increased to $2.39 billion.
On the next slide, we have the Singapore business, total sales, excluding switching. So you'll notice that in the first quarter of this year, the numbers were significantly higher compared to the few quarters of last year. And this trend was seen for both the B2B and the B2C divisions. But in the second quarter, the volume in terms of sales accelerated further for the B2C division and remained strong for the B2B division. So in the first half of this year, we've seen very strong sales number for the iFAST Singapore operation.
So with that, I've wrapped up the key summary points. I'll now invite David, our CFO, to run for section 1, which is on the financial results. David?
Good morning, ladies and gentlemen. I'm now going to present the financial results of the group. Firstly, it will be the second quarter 2020 versus second quarter 2019. Our gross revenue for the second quarter of 2020 also is about $38.55 billion, about close to 26% growth. The net revenue increased by 21% or about $19.4 million. Other income increased significantly to about $1.8 million. Expenses increased by 14% to close to $16 million, $15.9 million. There's a small net finance cost of about $20,000 and a very small share of results associate. Our PBT increased close to 100% or about $5.7 million. Our PAT increased by 67%, about $4.5 million.
Net profit attributable to owners of the company increased by 84.7%, about $4.5 million. And EPS is about $0.0167 for the second quarter of 2020. We will have the second interim dividend per share $0.75 per share.
The next slide will be the first half result 2020 versus first half 2019. Our net gross revenue increased by 33% or about $77 million. The net revenue increased by 23% or about $38.66 million. So you may notice that for the full second quarter and first half of 2020, there are some parts a significant increase in the revenue and the net revenue. There are a couple of reasons. Firstly, it was mainly due to the significant increase in the store and care processing fee that contributed to the increase of the nonrecurring net revenue and also due to the increase in the currency conversion service provide to our client. And for the recurring net revenue, of course, is also due to the increase in AUA due to the increase in the net inflow of the investment and also due to the increase in the net interest income or fee, cash accounting fee.
So for other income, you also note -- you may also notice this that actually, they also increased significantly by about 120% to about $2.4 million. The main reason is mainly due to the Singapore government grant that we received in the first half of 2020. The expenses increased by about 13% to close to $31 million. This was mainly due to, firstly, I think we have increased some staff costs, and we provide some more staff bonus due to the that good performance in the first half of 2020 and also some increase of the amortization of development costs.
We still record a net finance income for about $140,000 in first half 2020 compared with a net finance cost of about $130,000 in first half of 2019. It was mainly because of repay out bank loans during the first half of 2019. That contributed to a net finance cost in first half of 2019 a net finance income in first half 2020. Due to improvement of the associates -- the pro forma association record, it's more than a month of the share results of about 30,000 for the first half of 2020. So our PBT increased by close to 114%, about $10.12 million. Our PAT increased by about 105% or about $8.08 million. After excluding the noncontrolling interest, net profit attributable to owners of the company, we recorded a 101% growth or about $8.16 million.
Our EPS for first half 2020 is about $0.0302, 100% increase compared with first half 2019. And our cumulative dividend per share for the first half of 2020 is $0.015 same period last year.
This chart -- are actually this table is showing the first half 2020, including China operation from 2016 until first half 2020. I won't go through further in detail.
Next one is excluding China operation. So excluding the China operation, our gross revenue for the first half is about $76.49 million; net revenue, $38.13 million; other income, $2.38 million; operating expenses, $28 million; net finance income, $170,000. No change for shares associated. Our PBT, excluding China, is $12.5 million. PAT is about close to $10.5 million, same for net profit attributable owners or company. EPS, excluding China, is about $0.0387, and operating cash flow is $21.4 million.
These 2 charts showing the PBT margin for the group based on the net revenue. Left-hand side, including China operation, is about 26.2% for first half of 2020, excluding China operation is about 32.8% for first half 2020.
Next, we will show some financial indicators. For this time, we include the EBITA. So as the first half of 2020 is $33.71 million.
Our net cash position, including the investment in financial asset and our bank and cash and money market funds. And then net of the bank loan is $42.45 million as at end of June 2020. Operating cash flow for the group is $19.5 million. Excluding China operation is $21.4 million. Capital expenditure as at first 6 months of this year is about $5.06 billion; net current asset, $50.9 million; and shareholders' equity is about $95.37 million.
This one -- this table show the breakdown, the net cash position. Our cash and cap equivalent as at end of June 2020 is about $26 million. Other investments, mainly the investment in financial assets, is about $20.29 million. So total cash and other investments are $46.29 million, minus the bank loan, about $3.4 million. Our net cash flow position, I think, of the bank loan is about $42.45 million. Cost debt-to-equity ratio is about 4.03%, and we are in net cash position.
This chart is showing our group operating cash flow, including and excluding China from 2016 until first half 2020. So for first half 2020, excluding China, is $21.4 million, including China is around $19.5 million. Capital expenditure. Our first half 2020 is about -- we spent about $5.06 million.
Some update on the operating expenses. At the beginning of this year, the group guide that the operating expenses will amount to approximately between $59.9 million to $61.4 million in 2020. However, given the strong performance of the group in the first half 2020 and the positive underlying trends that the group is currently seeing, we could now expect the full year 2020 operating expenses to amount approximately between $63.4 million to $64.9 million. This reflects the increases in IT infrastructure cost, marketing cost, performance-based remuneration and additional headcounts in Singapore. The group is of the route that for the long run, it should continue to inverse ahead so that it can be ready anytime to support new market demand continuously.
Our number of issued shares at the end of June is about 271.15 million.
The next 2 slide is our consolidated financial position against the consolidated balance sheet. So at the end of June, our total noncurrent asset is about $60.9 million, certainly including the intangible asset and goodwill and also the rise of new asset, which actually the office -- list of our -- of the office premises of our group.
Current asset, $152 million, mainly consists of uncompleted contracts of $66 million. And trade and other receivables of about $38.4 million. Our current bank account at the end of June is about $720 million. So total asset is about $213 million.
Next page. Our share equity, $95.37 million. After including a noncontract interest, is about $94.85 million. Noncurrent asset liabilities, about $70 million, mainly will be the lease liability from the right asset. Current liability of $101 million mainly consists of uncompleted contracts cellulars and also trade other receivable. So total liability is about $118 million, and the total equity liabilities are $213 million.
For the second interim dividend for 2020, dividend per share is $0.75, the same as same quarter 2019. Ex-dividend date will be 3rd August 2020. Record date will be 5 p.m. of 4 August. So ex-dividend will be 3rd August and record date and time will be 4th August 5 p.m., 2020. Payment date will be on 19 August 2020.
I think that's all for me.
Hi, everyone. I'll carry on with the next section on the performance trend. Okay. On this chart, here, it shows a breakdown in terms of our AUA, firstly, by market. Singapore currently accounts for 67% of the overall AUA, I think has gone up slightly previous quarters because in the first half of this year, Singapore has actually been particularly strong.
If you look at the breakdown by product, the unit trials continue to be the key asset class for us. We expect that unit trials continue to be the core. But the other asset classes are actually, at this point, growing at a faster pace, especially if you look at the stockbroking sites, direct securities and ETF results, it's actually growing at a faster pace than unit trust as well as the overall AUA. That's the kind of trend that we've seen.
This chart here on Slide 26 shows the net revenue over the last 16 years, 16, 17 years with this between the recurring and nonrecurring revenue. In the first half of this year, we saw that recurring revenue is about 72% of the overall net revenue, and nonrecurring would actually be about 28%. The percentage contributed by recurring revenue has gone down versus the numbers in recent years. And the key reason for that is the fact that the contribution from stock broking side of the business have actually been growing at a faster pace than overall AUA as a platform. As a result, that we actually find that the nonrecurring income actually has gron faster. Even though the recurring income itself has continued to grow, but there's a bigger increase in terms of some of the contribution from stock broking, the commission income, et cetera.
Next. Yes. So this is a slide showing the net revenue as a proportion of overall AUA. So you actually know that in terms of the net revenue as a proportion of overall AUA, there's actually been some reduction in terms of the recurring component. However, the overall components have actually, in fact, improved somewhat compared to the previous year. So previously, I think we used to see the recurring component [indiscernible] of, say, 80% of the numbers, but now it's dropping to the low 70s. I will say that split of 70/30 is still a number that we are very comfortable with in terms of the overall contribution to net revenue.
There's a table showing the trend over the last few years. And as you can see in the first half of this year, we have had growth in both recurring and nonrecurring, but the growth in nonrecurring is actually -- has been much stronger.
Incidentally, there's also a question that we posted here online, asking why was there a discrepancy in terms of the growth rate of recurring net revenue? Why is that only 7.9% while the growth rate for the nonrecurring revenue was actually much higher? And the key reason is actually because the contribution from some booking has become a lot more substantial in the first half of this year. So they have actually contributed that stronger growth in the overall nonrecurring revenue. And of course, that also helped the overall net revenue of the group to actually be quite robust.
I would say that that's another reason why the growth in net -- recurring net revenue was probably a bit weaker than the growth in average AUA. And that, I would say -- yes. So the reason is because the overall mix of contribution from unit trust and -- has actually reduced compared to the -- in terms of the overall percentage contribution by unit trust as a proportion of AUA has actually reduced. That's why the recurring revenue growth was slightly lagging behind the growth in the overall AUA.
I think another factor that contributed during that period was probably the fact that there's some reduction in -- or there's a substantial reduction in the overall interest rate environment. So in terms of contribution from net interest income from the cash component that has also not grown at the same pace as AUA. So these are some of the reasons we think.
Next. Slide 29 shows the geographical contribution by country from the different markets. I think Singapore have has a bigger -- much bigger base of AUA and net revenue. So I think in the last few years, we have tended to see that Singapore growth in terms of net revenue have lagged behind the other country. But in this first half, we actually saw that Singapore was actually particularly strong, and Singapore has been a key contributor to the overall strong performance that the group saw in the first half of this year.
And this chart here shows a split between the B -- for the B2B business net revenue and the split between the recurring -- nonrecurring. I'll leave it to you to digest further. 31 is split for B2C business. The B2C business has actually been stronger than the B2B business during that first half of this year. And the reason is because during this recent environment, the COVID situation, we actually found that the growth in the B2C segment was actually a lot strong. But I think it's important to note as well that we also saw growth in terms of the B2B segment of our business. So we actually find that advisers where you've been using our platform have actually contributed stronger numbers during the period. Particularly, if you look at markets like Singapore where you actually find that a lot of the more traditional channels that are also well equipped to do business online, they probably have seen some decline in volume. But for us, I think the B2B segment, advisers who use us, they're well powered with the digital tools, so they're able to increase the contribution on our platform.
Next. These numbers are the breakdown in profitability by a different country. I think you can analyze it in further detail yourself.
Next. This chart is a chart that we've showing in the last few quarters in terms of the overall volume that we saw on the bonds business that we actually have. We have seen the growth year-on-year, though the increase hasn't been as strong as some other products like the stock broking side of the business.
Page 35, just a quick word about our digital banking application. I think in about 1 month ago, we announced that we are 1 of the 9 applicants for the wholesale digital banking license. We have been shortlisted to progress with next stage. So we are in that phase where by -- we presenting to MAs and answering other various queries. We expect that the announcement as to whether we will be successful or not will only be known in the fourth quarter. We can be sure of our success, though we believe that we have some strength on our part that can put ourselves in -- as a strong contender. Firstly, I think we have 20 years of track record as a profitable fintech, about 20 years of profitable growth as a fintech. I think in the fintech industry, we tend to find that the most company actually are not speaking. And getting a business model to work and actually people run smoothly is something that we don't see too many companies having achieved in Singapore in the region. So I think we are unique in that sense. Plus, of course, we have brought in some strong partner as part of the overall application. So we are hopeful as a result of that.
One of the questions that I've been getting quite a bit in the recent quarters is what is the cost of -- that we'll expand if we are to be successful in getting the digital banking license? In previous quarters, I have not been able to answer that number. Of course, the exact number and so on remains a number that may shape a bot here and there. But this is one way for us to look at what is the potential cost for us in going to this business. So we are estimating that by the time we fully launch a business, and I think the full year of launch will be 2022. If we are successful in our application, we will know about it, say, 4Q this year, but by the time it's actually launched at the end of 2021 next year. So the full impact in terms of the overall cost will actually be in 2022. So the -- when we launched the business, then we expect that the digital banking business will add between 9% to 11% to the group's overall expenses in 2022. That's based on our effective share of 65%.
I'm expressing it this way, just so that our investors have a good feel or better feels of the potential increase in cost for us as a group. Because I imagine that investors generally may be somewhat concerned about whether we're going to put a huge amount of money going to this digital banking if we are successful. What we have actually been noting in recent quarters is that we tend to be able to launch a new business at lower cost and most other players in the financial sector, largely because we have our own in-house IT team and so on. But to give a better feel of what is a potential number we're looking at, I think, yes, so this is how we think we can quantify at this point in time, so that addition of 9% to 11% to the group's operating expenses. If the overall growth of the group continued to -- continue as what we are planning for, then certainly, this growth in expenses for us to get into digital banking is something that is very much manageable for us.
Next. Yes. So in subsequent slides, these are some additional detail on the different market. I'll just mention a few points on each of them. Firstly, on Singapore. I think Singapore have seen a strong first half of this year. I think the COVID situation has actually led to a increase in the pace of digital adoption. And as a result that we actually found that the overall business that we have in Singapore have actually improved quite strongly. B2C in Singapore was particularly strong. But it's also interesting that the B2B segment have actually been pretty robust as for the overall sales volume confident, et cetera, that we saw actually increase. I attribute to the B2B group to the fact that I think ourselves as a provider as a platform for the B2B industry, I think we are more ready for the digital channel. I think the second reason is the fact that as a platform, we focus on the simple and transparent product. And it's a simple and transparent product is actually doing better in this environment where sales are done online as oppose of some of the products that tend to be rather OPEC. It may be investment products like the OPEC product, we are locking the investors than in the current environment, investors will not be that comfortable. But advisers are doing more of a simple transparent products to the [indiscernible] and probably less of other products like insurance, which tend to be more of a longer-term product. So as a result, iFAST has actually been a beneficiary.
Next. Moving on to Hong Kong. Hong Kong, I would say the Hong Kong among a few of our markets didn't show a stronger pace of growth during the quarter. And I think the reason is because Hong Kong seems to have a bigger share of the -- from a overall macro perspective, Hong Kong as a market seems to have a bigger share of the negative news compared to most other countries because most of the countries are impacted by the COVID situation, but Hong Kong seems to have the additional concern about security law, the conflict that China has with U.S. And all that have actually caused our overall Hong Kong market to actually perform not as well as some of the other markets. And as a result, that we find that our Hong Kong business didn't grow as much as it did in Singapore and, say, Malaysia. But I think what the play happen as well is that when investors concerned eases on and I think you tend to find that the volume in the Hong Kong side can actually bounce back very quickly. Nevertheless, during the first half, we continue to show some growth as well year-on-year.
Next. Malaysia is a market where we saw a 40% growth in net revenue. Overall, I would say that the growth in the core business have been strong. There's also been a strong -- a significant contribution from fintech division. I think our fintech division, we -- is a segment that's actually been making significant progress within Malaysia. We're actually helping some of the other company to develop some of the fintech solutions that's related to the wealth management needs and so on. So that has actually contributed quite well during the quarter. But overall, core business have grown as well. And again, I think the B2C side was stronger than B2B in terms of the overall growth.
China, I think -- I would say that China, in 2019, we have seen a tough period. Currently in 2020 in the first 2 quarters, while the overall numbers from China continue to be small relative to the potential, but I think we're seeing some decent improvement in this 6 months. So AUV revenue has actually grown during that period. And we have launched some additional services like rev account service and so on, which I think is an important reason why we have been able to see more interesting improvement in terms of the overall business that we have. Because in China, our business focuses more on the B2B segment. And the launch of rev account actually helps quite significantly.
India. India didn't do as well. I think India, by the way, is a market where we have effective 38% interest in that. The numbers are captured under contribution to associates. It's not profitable as yet. During the quarter, it saw a quarter-on-quarter growth, even though year-on-year, that number still didn't look very good. But I would say that the overall trend for the industry is still one whereby there's a very good potential as we move on going forward, medium to long term for the platform business.
And those are the different segments that we actually like to run through formally, and I think that's the last slide for us. What I would like to do now is to move on to the question-and-answer section. I think we already have quite a number of questions that have been there.
Okay. The first question relates to how the Federal reserve 0 insurance rates impact, so net interest income for Q2 B2B recurring revenue? Can I just maintain the net interest margin from cash, having trust for 2019 compared to 20 -- or 2020 compares to 2019, do you see any challenges are possible to improve further?
I would say that the interest 0 rate environment in the U.S. have, in fact, reduced the margin that we're able to get on the net interest income on the cash account that we actually have. Having said that, I think it's worth noting that the margin that we have actually continued to be a pretty healthy margin. We are making use of our ability to deal with the banks on the institutional basis. So on the one hand, we deal with the banks on an institutional basis. On the other hand, we deal directly with the retail customer. So there's some efficiency that we're able to bring to retail customers. So we continue to be able to bring better rates to the retail customer, yet sill maintain a healthy margin for ourself. But the margins are not as high as what we were seeing last year.
But I would say that the margins that we saw last year was extremely good. It's not a rate that we expect to continue to be the case perpetually. Right now, I think the margin has normalized. So because of that, we find that margins are lower, but still healthy. More importantly, I think the overall cash balance that we actually have as a group, that has continued to grow. And then I think in the long term would be still the key determinant of how much of net interest income, we're actually able to generate as we move on.
Second question. Since the launch of ETFs during 2019 November in FSMOne, can you provide more details on how this segment is performing?
Jean Paul, would you like to take that?
Yes. I'll answer this question. So we have ETFs available for investors to invest in on FSMOne Singapore for the last 3 years. And specifically on the November 2019 point, right, so I think maybe you're perhaps referring to the launch of the ETF regular savings plan, which indeed we launched in November of last year. So generally speaking, for ETF business, for Singapore, on the FSMOne side, especially, the response from our clients has been extremely good. And also the fact that we added the regular savings plan in November of last year for investors, the response has been also very good for that service.
And I guess the reasons -- there are a couple of key reasons. One is, it's easy to get started for investors in a regular savings plan. So we're looking at $50 per month and above into a select list of ETFs. And also, we've been working with our research analysts to provide ideas in terms of what investors can consider as the ETF invest into to give our globally diversified portfolio.
And also in terms of pricing, we're looking at a minimum just in SGD 1 or USD 1 or Hong Kong $5, depending on the exchange on which the ETFs are listed on and the commission fee, 0.08 bps, subject to these minimum fees. So it's a pretty, I think, overall, very value kind of -- high value kind of service for clients. So I think the response from the investors has been pretty good.
Next question. B2B segment growth, nonrecurring growth was 151% year-on-year. We need a number. We don't provide...
B2C, B2C, B2C.
Yes, okay. I think -- yes. If I go there in the segment -- in the question, it says say B2B segment growth, but I think they're referring to B2C segment growth. Nonrecurring growth was 151% year-on-year. It is a temporary phenomenon due to COVID. And are they -- yes. I think there's something short in the question. So if you're referring to B2B, then the growth was 52% in terms of nonrecurring in the first half. The 151% is actually for the...
B2C.
Yes, B2C segment of the business. Yes. So the reason why the growth has been pretty strong for B2B, that 50-plus percent is the most reason is because I think during a period, we have seen an increase in the overall business going to the more digital platform, like iFAST, and as a result that we have actually been able to benefit. For the B2B business, we also saw improved contribution from some new areas that's stock broking, even though that is not as big a factor that contribute to the increase.
If we are taking 151% increase for the B2C, then, one, the most important reason was because stock broking started to contribute a lot more given that first half. That's why the increase was actually very strong. So the overall account base that we had have increased a lot and continues to see a positive trend in terms of new account opening and so on.
Next question. Well, we have mentioned that in recent times, the contribution for fintech solutions IT fees have become more important. Can you please give us some idea on what percentage of recurring revenue on contracts is?
IT fees actually are categorized under nonrecurring revenue, mainly. So that is actually one of the component under nonrecurring revenue. And I was doing -- yes, as a very rough indication, I would say that the IT fees contributed about 15% of the nonrecurring net revenue. That's a very rough indication.
Assumes we have slowdown in growth for Hong Kong in second quarter relative to the other market was a reason for this?
Yes, as I mentioned earlier, I think Hong Kong seems to have to be a market that got impacted more than most other countries. That's how I attributed to because more concerned -- beyond just COVID, there was a concern about the security law, about the ongoing dispute between U.S. and China. And that has affected the overall market. And as a result of that, I think Hong Kong saw some of that issue.
I think the other, a point to note really is that that's been our observation that our business volume in Hong Kong tends to be more volatile than in other countries, including Singapore. I think perhaps the reason is because in Hong Kong, investors there and advisers there as well tend to be more active to the momentum in the overall market. So when markets are down, you tend to find that investors, since we react more strongly when markets are up, they tend to come back sooner and in a bigger way as well. So that is one of the effect that we tend to see in Hong Kong. So -- yes, so I would say these 2 reasons are the key reason why Hong Kong didn't grow as well as Singapore and Malaysia.
[indiscernible] segment seems to a going stronger, an [indiscernible] from 0 trading commission?
Yes. I think this 0 trading commission is something that has actually happened in U.S. And I think certain players in Hong Kong are starting to do some of that. Our view of the pricing situation is that we want to make sure that we provide the best overall value for money.
I think we learned from how we operate our platform business all these years that if you are a market leader, if you are a strong player, you actually wouldn't be able to be the one with the lowest pricing. So we have been a market leader for unit trust platform. All this while, we did find that our competitors have always tried to compete on price. But we know that while we want to make sure that we have competitive pricing, but we can never be the lowest because whatever price we set, they actually set lower.
So for booking, of course, we are a relatively new player. So when we started, we want to make sure that we are officially competitive. And I think in Singapore, we are still probably the most competitive for the Singapore stocks part of the business.
Will that situation where we are the most competitive always be the case, all the time, especially considering that globally, some players are going on 0 commission? I would say that obvious that we have to expect some believe will do the 0 commission at some point. And on our part, we want to make sure that we are one of the most competitive on an overall basis, we will provide the best value for money, but we need to go down to 0. Our belief is we actually don't need to, mainly because pricing is just one consideration. I think the other key factor, a key differentiation that we bring to the market is that we are running an overall wealth management platform. I think that strength should not be underestimated. Because if all we do is focusing on the transactional part on one asset class, then you can find that it's very easy for investors to move around.
But if you are focused on aggregating the aim for multi-asset classes in one platform and make it very easy, very similar for investors to move among the different asset classes. And yet, on an overall basis, we are still the one with the best value for money, then we'll be able to ensure that we can cope very well even as different players try to move the pricing lower and lower.
Yes. So I suppose, in short, we're actually saying that we have to assume that some players will try a 0 commission at some point. Will we do it? We think that we have won a few that have the capability to do it if we need to.
But is that the best way to try to tackle completion? My take is that may not be the best way. Because I think the players that have gone on 0 commission and then relying mainly on net interest income, they start to find that all of a sudden, their caught into this environment because when their federal reserves start to bring interest rate down to 0, then a big chunk of the revenue will start to actually go away. So some of the original thinking seems to be impacted quite significantly.
So I think the best way to have -- to design a revenue model, is actually have a revenue model that has multiple components. So the strong recurring income from the unit trust partner business from the share from the trailer fee, some -- and then a good recurring income from a net interest income, but at the same time, still have a decent level of transactional income, while having quite competitive pricing. But I think when you aggregate all the volume that transactional income can make a significant difference.
The other component, of course, is FX margin. FX margin, I think, over time, will become a number that will be a sizable contributor. So having a more balanced revenue base that have contribution from all the different component is actually the best way to remain competitive in the long run.
I think Chung Chun, for the next question, [indiscernible] a [indiscernible] question from [ Andrea ].
I have a couple of questions. I think the first one is on the -- I mean you managed to gain quite substantially from the markets and you also benefited from many account openings during [ circuit breaker ]. I wanted to ask how you see volume trends going forward into the second half?
And also, if it's reasonable to say that you could possibly see a softer trends in terms of revenue going forward as the whole euphoria comes down? Or will the recurring portion of your AUA be able to offset that in the second half?
Another question would be, I noticed that your fees and commissions paid to third parties, it was down here on Q by about 5% versus flat revenues. Just wanted to see if there were particular reasons for this reduction? And if you expect this reduction to sustain over the full year?
Let me take the first question first about the volume trend for the second half. I'd like to say that one of the key number for you to pay attention to will actually be the overall net sales, now we call it net inflow, that we report as a platform. The -- in the first quarter, we reported that net inflow was $590 million. So that was a record.
The second quarter, we have just reported a net inflow of $656 million. There is a new record that we've actually see, which means that for this year, we have already seen a net inflow of $1.25 billion onto our platform in just 6 months. Last year, as a whole, for the year as a whole, by comparison, was $976 million. So that means the first 6 months, we're already exceeded the net inflow for the whole of last year.
Net inflow is a key parameter to watch up fall because it will give the best tool about the overall sustainability of revenue for us. I think based on some of the recent trends that we are seeing, we are hopeful and we have reasons to believe that net inflow in the second half can continue to remain strong. And if that is the case, then we'll continue to give an add-on to the AUA -- group AUA that we had at a decent pace. And yes, so I think in the end, if you look at the overall net inflow and then you look at the overall AUA that we actually have to decide whether the numbers that we'll see going forward into the second half and beyond is sustainable.
I think the numbers that we have been reporting, of course, are indicating that things have been strong. The only thing that since we're a bit different now is that the recurring component grow at a slower pace than nonrecurring. But nevertheless, the overall AUA that we had, the net overall revenue that we are able to garner have actually been quite robust. That's my answer to the first part of the question.
The Second part is, David?
Okay. I think, firstly, I think the business nature is you still have B2C and B2B business. Actually, for B2B business, there is a share...
Can you repeat what was that question?
Sorry, would you mind to repeat your question again?
Yes, sure. Okay. So just looking at your revenue trends and the fees and your commissions paid to your third parties, so I noticed that we juts paid, make up about 50% of your revenue. And when your revenue grows, that portion of the income statement loss as well. So seeing that in second quarter, revenues were flattish, but yet I still saw a reduction in the fees and commissions paid out. Wanted to see if there were particular reasons or you changed the benefit structure to your FAs? And whether this can be sustained going forward.
So the second quarter -- you're saying second quarter compared to...
Yes, like on a Q-on-Q basis. Yes.
On Q-on-Q basis...
We see rise and fall quite in the same -- and not to the same degree, but in the same kind of trends as in revenue and fees. So in this quarter, particularly, there was a flat revenue, but yet I saw permissions actually contract. So wanted to see if there were particular reasons for the contract?
Yes, yes. So the payment to third-party, this one will be mainly the share of commission that goes to the financial advisers. So that number is dependent on the new sales, that tend to be more dependent on the new sales that come about because when you put in more volume, then there's bigger commission income that would pay a bigger portion to the adviser.
If you take the B2B business itself, then second quarter number was a bit weaker than the first quarter for the B2B. And B2C second quarter was stronger than the first quarter, but B2B, year-on-year growth was pretty good, but second quarter compared to first quarter was a bit weaker. And as a result of that, the commission payment to the financial advisers goes down quarter-on-quarter. It grows year-on-year quite robustly, but quarter-on-quarter, it's closed down. So that's the reason for that. No other special reason in terms of change in terms and so on.
Okay. So looking forward, what would determine it is which segment grows more? And that's what concludes how your cost -- how those fees and commissions move us? Did I get it right?
Correct. The fees and commission is mainly due to the B2B segment. So you'll fluctuate according to the level of business there, especially the level of new business, the new inflow that comes in during the quarter. Yes.
Yes. Just 1 more add-on question to on cost. So you guide that you think 2020 of total OpEx will come up higher to about $59 million to $61.4 million, and you gave the reasons for that. I wanted to ask if the cost in the total expenses in second quarter is including the JSS received up until June? And also, with your guidance and how you expect the digital cost to add on to cost in 2022? Are there any levers to -- for cost reduction between now and 2022? Or are these costs already absolute and set?
We'd just like to clarify that the amount that we get from under JSS scheme, this sort of rich subsidy from the government. The model we get on a JSS is actually captured under other income. It is not offset -- it's not being offset at the expenses level. So the expenses is not affected by the JSS, but you see some additional other income being booked during that period.
So we have recognized some of that in the first quarter and second quarter. There will actually be more in third quarter and fourth quarter to be recognized. So this is far as the JSS is concerned.
On the -- yes, expenses going forward and so on. I think on our part, we are, in the end, looking how do we balance the overall growth that we have. We have the need to control the cost tightly. So I think early this year or end of last year, we talked about wanting to bring down the expenses group and so on. And that was basically initially taking to the assumption that let's assume business growth isn't too strong. And if that's the case, and how do we need to manage expenses. But as it turned out, I think the first half has been strong, and we have reasons to feel positive from the second half as well, which is why we feel that it's fine for us to actually start to increase some of the expenses for the current year and while still ensuring that the overall bottom line number that we have will be strong. So that's the way we actually look at it.
So that thinking will prevail as we go into next year as well. We want to make sure that we're able to grow our overall revenue -- or net revenue better than the rate at which we can grow our expenses. And that is actually means that we are striving to be able to improve our overall margin. There's clearly a goal on the part of the company. And -- yes. And as we are able to achieve that goal of being able to improve our margins as we continue to grow, then we'll manage our expenses accordingly during the [indiscernible]
Another question from [indiscernible].
Can you hear me?
Yes.
I just want to -- any clarification on Q2 results, which if you deduct government grant of $1 million, actually, Q2 iFAST is doing 6 worse than Q1. If you minus the $1 million grand, your Q2 profits, only about $3.52 billion compared to $3.64 million. This is a bit puzzling to me because, first of all, the market in the 3 countries that you operate in has gone up significantly. Secondly, your average AUA has also gone up. So why is the -- why does profit seems to be coming down instead? Maybe you can clarify this.
Yes. So if you just show the -- okay. Actually, in terms of the JSS that we booked in second quarter, $300,000?
$1 million.
$1 million.
$1 million. First quarter was about $500,000. Yes. So first quarter, that's $500,000. Second quarter was $1 million. So there's a difference of $0.5 million.
The other point to note is that we actually took the chance to make some bigger provision for certain costs, including a bonus pool for the staff. So that's certainly the increase in what we provided, certainly, is more than $0.5 million. So that is actually one way to look at the reason. So I think if you just purely subtract the additional JSS amount, I think that wouldn't explain the full picture.
So as I mentioned, I think we took the chance to also provide the additional bonus, yes. That's what we typically do when we have a stronger quarter as well. And yes, so that's the way to look at it. So otherwise, on the overall, there is certainly second quarter is stronger than first quarter.
Yes, yes. I have another question to follow-up, which is, has the JV in China been operational? Have we started business in China now that the bank account is already open?
Not yet. We are going to -- yes, we're planning to sort of launch that quite soon, officially started. And I suppose the main reason is because we have a COVID situation, they sort disrupt on the plant. So some of that has actually been postponed as a result of that. That's the current status. But we are looking to start quite soon in the months ahead.
So we'll move down to the questions, both on the chat. So the next question will be by Umar Ali. This is also related to the JSS scheme. So how [indiscernible] line have been excluding the JSS?
Yes. So yes. So this question, well, there has been additional contribution from the JSS, but at the same time, it's also worth noting that we took the chance to progress from other additional expenses as well. I think the key point to note really is that -- yes. On an overall basis, the core business without the JSS has actually been robust. I think if you look at the net revenue number and so on, that actually shows the real trend.
Second question is on cost of sales are rising faster than sales itself. Why is this so? And do you expect the sales cost to flatten at some point in time?
Yes. So cost of sales mainly coming from the commission payments that paid to the financial advisers. So when a financial advisers put in some volume on, say, the unit trust and then they charge some upfront sale charges or upfront commission, that amount gets captured under the revenue, but the bulk of the upfront commission would actually be payback of it to the financial advisers. So when you have new sales instead, you actually find that the commission amount actually goes up quite substantially. And it go up -- so when there's sudden increase in new inflow, there will also be a sudden increase in the upfront commission and therefore, a sudden increase in the cost of sales that we actually report. So that's the key reason for that.
If we go into a quarter whereby suddenly, the net inflow actually gets reduced, then the cost of sales accordingly will actually be reduced. So that's a way to understand the number. I think there isn't any structural reasons of things becoming worse and so on. Yes, that should be the way to look at it.
The next question is on stock cost. So the stock costs has increased as the company expanding. What is the expansion for? And which area you are expected to have more jobs added?
Yes. So of course, that increase. The company is actually expanding. In fact, we -- yes. So we understand that COVID situation, most companies have actually tighten up as far as the cost side concern like staff. But for us, because the overall volume have actually been strong. And in a sense, there's also a consideration that for us as a company that is doing well during COVID period, but we do get the JSS from the government, we feel that the best thing that we can do is actually to help to create more employment in Singapore, hire more Singaporeans particularly. And because of that, the staff -- the number of staff has actually increased. Having said that, of course, we are hiring in anticipation that -- yes. We actually have that requirement. A bit of hiring in anticipation of a potential success in the digital banking space, but some hiring as well in consideration of the fact that our overall Singapore business have actually grew quite strongly.
And yes, as I said, the one consideration is the fact that into this climate in terms of doing our part for society, I suppose one of the best thing we can do is really helping to create more employment.
So our next question is, do you have current post-paid stockbroking services to be more competitive versus your peers?
Yes. Post-paid as in buy [ now ] and pay later, our general thinking is we don't expect to offer that service. Because we feel that if we do that, then it does actually weaken some, the overall model that we had on the stock booking side of the business. If you look at our business, especially -- so if you take ourselves in Singapore, we are actually still one of the smallest players in Singapore. So it's not working in some sense because we are the new ones or one of the ones. As a trading and clearing member, we are the new ones. But we are able to actually have a robust model and be profitable for the stock bookings of our business. And that comes from the ability to manage a business in a different way. I mean writing on our overall user base is one, but it's also the way we structure the overall revenue module model, the way we try to ensure that we do have to incur control losses if the clients do't pay up and also to ensure that we are earning net interest income rather than having to subsidize the client because the clients pay late on the net interest income. So that overall thinking had to go together. As a result of that, we think that we are not keen to offer the post-paid stock offering services.
So next question is on the digital bank. So the question is, the strategy is to draw foreign currency deposits from overseas and lend to SMEs, and those seems to be very new markets with and certain part of success, in particular [indiscernible] Singapore [indiscernible] return?
Yes. So as far as digital banking is concerned, when we look at the digital banking space, we are clearly of the view that there's a huge amount of untapped opportunity. I think this -- it is true that Singapore is already well banked, as in everybody -- almost everybody that wants a bank account, has a bank account already. But I think that doesn't mean that there's no opportunity for newer players to come in.
I think one example will actually be stock broking industry. I think if you speak to most of our existing stock operating, stock broking is a tough business because most companies in Singapore are losing money. But that doesn't mean there's no opportunity for a player to come in. There is some more innovative model, they are able to provide a certain value. There's not -- that commonly provided. So we have actually demonstrated that we're able to do that. Even us, we are the newest player in Singapore as a trading group.
So if you look at the banking space, my view is actually the opportunity is even clearer than the stock broking business, than the stock broking industry. In my mind, actually, this is the one area where there's a lot of untapped opportunity because we're talking about an environment where there hasn't been any new player in the industry for decades. If you're not already a bank, you cannot be a bank in the last few decades. That is really the world has worked. And in that kind of environment, then you start to lead to some kind of or complacency as a simply -- I mean the existing client may not be happy to hear this from me. But my view is that's how business environment work. If you don't have new competition coming in, then you'll find that certain parts of the business services are not as good as what it can be.
So with that in mind, we are of the view that there's actually a quite substantial opportunity. So we have spoken about the potential shareholder for the foreign market. Because again, our view is that in the future, financial services, fintech will become a more global business. You can set up a business in one country and tap into the world that we say Netflix is actually doing. And that opportunity, clearly, is not that big to properly.
If you look at the foreign currency market, I think the local banks, today, they may offer multi-currency account deposit, but they are essentially being 0 interest rate for most or all the foreign currency. That really is not an environment whereby opportunities are not available anymore. And I think there is a quite substantial opportunity.
But within Singapore, so the big long-term opportunity, in my mind, is looking at things from a global basis and then operating in Singapore. But within Singapore itself, in terms of the opportunity that we see, even for Singapore for instance, Singapore, for instance, we actually feel that is a substantial opportunity for us. And in our case, we feel that we are able to make a difference if a successful in becoming -- in getting the digital banking licenses because we really have a very established B2C and B2B channel. We feel that we will be able to take in to the strength of our B2C channel and B2B channel that ecosystem that we already have. And -- yes, and launch a business where we can actually take into that opportunity quite well.
That's -- yes, what I would say at this stage, if we are successful then in the quarters ahead, we'll give more details about the actual business there. Next question?
So the next question is on bonds. So can you give us an update about the corporate bond business? Are customers able to trade bonds on all markets? What is the prospect of this product for iFAST?
To trade a bond on all markets, well, there are no -- in the bonds business, there isn't actually a bonds exchange. So in terms of what we're trying to do is we're trying to provide a business that allow us to be as close to offering the services of an exchange responsible. So having said that, I think we are already offering bonds that originated in different countries, whether it's originator in Singapore. On Hong Kong or Malaysia, we are actually carrying orders. So the investors are able to have access to all these different currency points. So in that sense, those are already available. We have been seeing a steady growth in our bond business. Though I would say that we have yet to tap into the true potential that we believe is actually available in the bonds business.
So the next question is, this quarter has started only high on [indiscernible] -- historical high cash out interest. Is this due to more [indiscernible] resulted to the increase, specifically [indiscernible]?
If the question is with regards to whether it's cash coming from Hong Kong and then finding -- looking for CFO Singapore as a place a part? I would say, no, that's not the reason. We do have some business inflow coming from our existing client in Hong Kong or from the financial advisers who work with Hong Kong who want to help the client to bring some money into Singapore, that numbers there. But that is not something that has become that substantial.
The main reason for the increase in cash that we have is specially as a result of the growth of our Singapore business, especially the FSM Singapore business, but the B2B side of the business as well, that has actually been growing. And as a result of that, we actually have more clients, money to catch account as they read to invest in the different investment products.
Next question is, looking at the [ products ], how likely are Q1 and Q2 results [indiscernible] into Q3 or 4? There seems to be a lot of volatility, which end up as a beneficiary. Is that a thing to say?
Yes. So I would say that to try to predict the numbers for future quarters, then I think one of the key number to look at is still the AUA. AUA would still be a key measure and parameter that we, as a group, should fall. And of course, the other related number will be the net inflow, as I mentioned. So net inflow will, of course, be the most important reason that will lead to higher AUA. And then as AUA increases, then the overall revenue that we actually had increases as well.
We know that through the COVID period in the last 6 months, I think AUA increased 11.2% in the 6 months. And the reason is essentially because of the net inflow. So we are hopeful that net inflow will remain strong in the second half, and there is a AUA already a record high. I think that gives some indication of what to expect as far as the overall revenues are concerned.
And yes, of course, from quarter-to-quarter and so on, there are some volatility that's seen in the market that may affect the volume in the stock broking business. But I think in our case, while the market volatility is not a factor that contribute to the increase in the contribution from stock broking booking business, the nonrecurring income, but I think a bigger factor for us have been the big increase in the overall account base, that come in for those who want to invest in stocks true-ups, that has actually increased quite substantially. I think that's the most important reason for the increase in that business for us. So these are -- most of these results are essentially sustainable.
So the next question is, is there any activity on how much additional revenue we can expect from CPF-OA and SRS investment in stocks through FSMOne? And is it possible to give some estimate?
My take is that there will be some increase, but I wouldn't see that as important factor in terms of increasing the overall business for us. I think as part of our concerned effort to improve the overall services that we have, these are just some efforts, some additional services that we introduced along the way to make sure they are complete. But as to whether there will be a big impact on the overall business that we have in Singapore, in percentage term, I would say that won't be a strong percentage.
We have the next question. Considering that you expect FX margin to be a significant contributor in the future, as you just said, do you have any plans of opening up other markets to start purchase on FSMOne, for example, Australia, Japan or any of the European markets? The first month, [indiscernible], it will help more with the FX conversion revenue.
Yes. So the -- so today, we have U.S. and we have Hong Kong and then we have Singapore. We have plans to -- at Malaysia, we have applied for a license. We are awaiting the approval. We hope we can be successful. If that's the case, I think that will be something that will help our relation business further. And if we are successful in the application there for Singapore, we also consider introducing [ million ] stocks at some point. We also have plans to add the Shanghai and Shenzhen Connect to our platform. That is work in progress.
As far as the other markets are concerned, it's something that will evaluate along the way. I think what we would like to highlight is also that if you look at the overall investment environment, we think in terms of -- yes, not just -- I mean, I think all the different market is one [indiscernible] that has rebalanced against what is truly the best way for investors to invest in those markets. So if you want to invest in Japan, I suppose the consideration is, to what extent where investors directly be buying into Japanese stocks versus buying into some unit trust or ETF that invest in Japan, for instance? I think what we have found is that the pickup of investment in foreign stocks is the highest for the U.S. I think U.S. is a very substantial part of our store working business now.
I think the next market will actually be Hong Kong and eventually China. So for the other market, I think we -- along the way, we'll assess whether it truly makes sense for us to add all those markets or our investors. In fact, I prefer to actually have exposure through some of the other -- yes, investments from window we are recurring such as unit trust or ETF and so on.
Because I think in the end, investors need to understand the companies and be familiar with the companies that they are investing before they will buy directly to the stock market. And U.S. companies are household names, the big tech firms and so on, these are all household names. So Singaporeans as or even people in other markets are basically very comfortable investing in U.S. sales, but that may not be the case where the Japanese names and Australian names and so on. Yes, that's the way we look at it.
Then we have our last question, which is on the digital bank. So in [indiscernible], if I can recall clearly, Mr. Leung mentioned $60 million or $65 million is required to be based. What would you expect from this base? And would it be EPS kind of base?
Yes. So if we are successful in our digital banking application, the -- our share of the upfront capital that we intend to put in on day 1 is about $80 million. I think I have mentioned before that, that will be raised through a combination of some equity issuance as well as existing group resources as well as some bank borrowing. I don't recall mentioning the $60 million or $65 million. I think I was probably talking about somewhat lower number. Yes. So the exact number, of course, will be something that we'll plan onto when we are eventually successful maybe going into next year.
We will be EPS accretive. Certainly, we expect to be EPS accretive, if you would think in terms of the -- going forward the next 3 years, 5 years. If you talk about it on the immediate basis in year 1, may not be because, yes, we will be at a develop stage. But if you talk about it over a longer period of time, then certainly, we expect that this overall investment into the digital banking will be U.S. accretive.
[Foreign Language] So thank you, everyone, for attending our results briefing, and we have come to the end of the briefing.
Thanks, everyone.
Thank you.
Thank you.