IFAST Corporation Ltd
SGX:AIY
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IFAST Corporation Ltd
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Good afternoon, everybody. Thank you for coming over to our office for our full year results briefing to all of you here as well as to those who have joined us via Zoom conference. So my name is Jean Paul, I'm from the Corporate Comms team, and I'll be presenting the key summary portion of today's presentation. And I will then next invite David, our CFO; and Chung Chun, our CEO, to present the remaining portions of today's presentation.
So starting off with a key summary. So the group started 2019 on a weak footing. But we saw significant progress as the year went on last year. So as at 31st December 2019, our AUA grew 24.4% -- 24.2% year-on-year to a record high of SGD 10 billion.
So we noticed that the record yields were achieved in our key markets of Singapore, Hong Kong and Malaysia, as we continue to benefit from the continuous efforts that we've been putting in, in improving the range and depth of our production services.
In terms of net revenue, we continue to see growth as well. We hit a record high of SGD 16.96 million in 4Q last year. So for our net profit, it increased 14.4% year-on-year to SGD 3 million in 4Q. Although for the full year of 2019, net profit was down 12.8% year-on-year, essentially due to the first -- poor first half that we saw in 2019.
If we look at the last 3 years, the group's AUA has increased by about 64% at SGD 6.1 billion 3 years ago to SGD 10 billion at the end of last year. In terms of net revenue as well, over the last 3 years, we've seen very good growth. Net revenue grew by about 60% from SGD 40.69 million in 2016 to SGD 65.2 million in 2019.
What we do note as well is that the growth trend for net profit has, however, not been as obvious in the last few years and that has resulted from the fact that we've been prioritizing our efforts to further enhance and improve the range of products and services, essentially our platform capabilities.
So while the group is expected to continue to improve and work on upgrading our regional platform capabilities further, including laying the initial foundation for a digital virtual bank, we expect that over the next 12 months, the pace at which our operating expenses has been growing will start to moderate. And this is because a large part of the key infrastructure that is required for an integrated wealth management platform is already in place. So we mentioned this previously in the last quarterly results, where we talked about OpEx a little bit.
So we're estimating that OpEx will increase by about 6.8% to 9.5% year-on-year, and that's approximately about SGD 59.9 million to SGD 61.4 million for this year of 2020. The estimated percentage increase will be significantly lower, if you compare it to a double-digit percentage increases in OpEx that we've seen in the last few years. But of course, this does not take into account the application for the digital banking license in Singapore, which may affect expenses in the second half of this year, if the success -- if the application is successful.
Overall, we continue to believe that growth opportunities in Asia's wealth management industry remains very substantial, and we're well positioned to benefit from these opportunities in the medium to long term. And continuing growth in the group's AUA and net revenue, combined with this moderation in expenses, that we just talked about, will allow the group to better see the benefits of our scalable business model.
We also touched on this point, which is the outbreak of the COVID-19 has caused substantial concerns of potential negative impact on the overall business environment. As of 19 Feb, the group has not seen any substantial adverse impact on our overall business. The AUA of the group as of 19 Feb has remained above the levels that we've seen at the end of last year, which is SGD 10 billion.
For the final dividend for full year 2019, the Directors are proposing a dividend per share of SGD 0.09 per ordinary share, which is subject to shareholders' approval at our AGM on 23 April.
The digital bank consortium are led by iFAST Corp, led by ourselves. We submitted an application for additional wholesale bank license in Singapore. The iFAST-led digital bank license, we shared a bit about this at the start of this year, so we aim to better serve, firstly, the global mass affluent market by tapping on Singapore's growing role as a leading wealth management center; and secondly, we also believe there's a big opportunity in Singapore to become the bank of choice for SMEs, particularly for loans.
One more point here is on the new risk-based approach to quarterly reporting that SGX has announced at the start of this month. So although iFAST Corp is not among the companies required to do quarterly reporting, we have decided to continue leading the way in maintaining high standards of corporate governance through the continuation of quarterly reporting. And we believe transparency is key in giving investors the information they need to know more about the company, our goals and vision in a clear and timely manner. So we'll continue to do that quarterly reporting.
So here, we have 2 charts. So firstly, the AUA chart, which you'd see -- we shared with investors at the start of this year, so a record high of SGD 10 billion in terms of AUA as at 31st December, broken down by our B2B and B2C business units.
And here, we also wanted to share our usual charts and updates on the net sales and subscription, excluding switching. So for net sales, you will see in the notes that we gave the number for each quarter. So the second half 2019 net sales as well as the second half 2019 subscription, excluding switching numbers, are much higher than the first half of 2019. So we saw that improvement in second half last year.
So I'll next invite David to run through the financial results.
Good afternoon, ladies and gentlemen. I'm going to present the financial results of Q4 2019 and full year 2019. So as usual, we will present our group result, excluding and including China operations. So Slide 11 is the Q4 2019 versus Q4 2018 financial result, excluding China operations.
Our gross revenue increased by close to 21% to about SGD 33.6 million. Net revenue increased by about 14% to about SGD 16.8 million. So actually, we have a quite good second half of this year and the market sentiment in the second half and Q4 '19 is more positive than the first half of 2019. And so this also contributes the growth of our AUA and also there's some increase in the subscription or given kind of investment product that we distribute. So all this contributes to the growth of the gross revenue and net revenue for Q2 '19 compared to Q2 '18.
Other income is about SGD 120,000, almost about 96% growth compared with 2018. The reason is mainly due to the increase in the investment income during Q4 2019 period. Some grown expenses because we actually keep on enhancing our platform capabilities, so we spend a bit on to develop our platform and also to make it more enhancing. It will increase our depreciation. So anyway, the expenses grow about 9.1%, about SGD 12.8 million.
The net finance income only about SGD 70,000 for Q2 '19. The reason is because actually due to the change of the Financial Reporting Standard 16 Leases, so we need to put in the interest expenses of the lease liabilities due to the office lease. So there's a drop of financial income of about SGD 70,000.
Our share of results of associates, which is about SGD 110,000 for Q2 '19. The reason was mainly because actually in -- for Q2 '18, we did a one-off gain from one of our associate companies. So as a result, there's a drop in the share of results of associates for Q2 '19.
So then the PBT, there's a growth of about 17.5%, about SGD 4.7 million PBT, a growth of about 13% or SGD 4.24 million. And then net profit attributable to owners of the company is also SGD 4.24 million. EPS, SGD 0.015. So these are the results of 4Q 2019, excluding our China operations.
So we move on to next slide, Page #12. If including China, our gross revenue increased by close to 21% or SGD 33.8 million. Net revenue increased by 40% to close to SGD 17 million. Other income is still the same.
Expenses, SGD 14.2 million, about 9.3% increase. Net finance income of about SGD 40,000. No change for share of results of associates. PBT for 4Q grew about close to 21% to SGD 3.4 million. PAT SGD 2.96 million, representing 15% growth. After excluding the noncontracted interest, so our fourth Q2 '19 net profit is SGD 3 million, about 14% growth.
EPS, 0.0112 versus 0.09. Dividend per share is SGD 0.09 for the final dividend subject to approval in the coming AGM.
Next will be the full year financial results, excluding China. For full year, our gross revenue is about close to SGD 125 million, about 4% growth. And our net revenue increased by around close to 10% or about SGD 64.6 million.
We do report the result announcement [indiscernible] there's a table that shows the gross revenue and the net revenue for the first half and second half of 2019. We noticed that actually we start with a weak first half, but actually I say the market sentiment in the second half becomes more positive, so all this contribute to the growth of the full year gross revenue and the net revenue.
Other income grew about 75% or about SGD 2 million. As mentioned earlier, the reason is mainly due to growth of our investment income. Expenses, a 14% growth to about SGD 50.4 million. We record a small finance -- net finance cost for the full year 2019 due to 2 reasons.
Firstly, in December last year because we want to apply for the virtual bank license in Hong Kong, so we draw down a bank loan in December 2018, and we have fully repaid the bank loan in December 2019. So as a result, we need to put in the bank interest expenses for this bank loan.
And secondly, as I mentioned earlier, due to the change of financial reporting standard, we need for keeping accounting purpose, we need to book in the interest expense from the lease liability. Actually, it's our office leases.
And let's move on for the share of results of associates. We have a small loss of SGD 50,000 versus a gain of SGD 520,000 from last year. The reason is, as I mentioned earlier, because there was a one-off gain from one of our associates in last year.
So the PBT, there's a drop of 6% to about SGD 16.1 million. PAT, a drop of 7.6% to about SGD 14.3 million. And net profit attributable to owners of the company, excluding China, same SGD 14.3 million. EPS excluding China is SGD 0.0535.
Slide #14 is the full year results, including the China operations. Gross revenue of SGD 125 million. Net revenue, SGD 65.2 million. Other income, no change, SGD 2 million. Expenses, about SGD 56 million, about 12.6% growth. A small net finance cost of about SGD 60,000. No change for the shares of results of associates. PBT, about SGD 11.1 million, about 10% decrease. PAT, SGD 9.3 million, about 12.9% decrease. After excluding the noncontrolling interest, net profit attributable to owners of the company is SGD 9.5 million, about 12.8% decrease.
EPS for full year is SGD 0.355 versus SGD 0.041 in 2018. Dividend per share for full year is SGD 0.0315.
Slide 15 is just a 5-year P&L, excluding China. I think most of the figure are represented in the earlier slides. I just want to highlight about our operating cash flow, excluding China, is SGD 23.54 million.
Slide 16 is the 5-year P&L. I just want to highlight the 2 figures about some of these operating cash flow, including China, is about SGD 19.3 million. Dividend per share is SGD 0.0315, same as last year.
This chart shows the PBT margin based on the net revenue. Left-hand side of the chart is excluding China operations in 2019, our PBT margin, excluding China operations, is 24.9%, excluding China operations. If we including China operation, which at the right-hand side, is 17%.
Slide 18 is some financial indicators. For financial year 2019, our net cash position that include the cash and cash equivalent and the investment in financial asset is about SGD 14.15 million. Operating cash flow, SGD 19.3 million. Operating cash flow, excluding China, is SGD 23.54 million. We've spent about SGD 11.9 million for capital expenditure for 2019. Net current assets is SGD 49.86 million, and shareholders' equity is SGD 90.06 million.
Slide -- Page #19 is just to show you the cash and cash equivalents and minus the bank loan. Our cash and cash equivalent is about SGD 24.8 million; other investment, SGD 19.1 million. So the total cash and cash equivalent and other investments is about SGD 43.95 million. We still have a small bank loan about SGD 3.8 million. So the net cash position after netting off bank loan is SGD 40.15 million. And gross debt-to-equity ratio is 4.23%, and we are still in a net cash position.
These charts show the operating cash flow for the last 5 years, excluding China and including China. So in 2019, excluding China, the blue color bar is SGD 23.54 million; including China, the orange color bar, is SGD 19.38 million.
These are the spending of the capital expenditure for the last -- since 2011 and 2019. In 2019, we spent about SGD 11.9 million and our forecast for 2020 is -- that may be slightly decrease to about SGD 10.81 million. Based on that, our 2020 forecast does not take into consideration of the successful application of digital bank license in Singapore.
Slide Page #22 is the number of issued share excluding treasury shares as at end of 2018-2019. So as at end of 2019, our total number of issued shares excluding treasury shares is 268.73 million.
The next 2 pages are just the consolidated balance sheet. So our total noncurrent assets as at end of 2019 is about SGD 52.46 million, while in 2018 is about SGD 30.3 million. I think, obviously, the most obvious items will be the right-of-use assets, SGD 14.39 million. This is due to the change of Financial Reporting Standard that we need to book in all the operating or office business as a right-of-use asset. So other than that, also due to some growth or increase in the plant and equipment and intangible assets. So -- and also, there's some increase in associates mainly due to the additional investment in the business during 2019.
Our total current asset is about SGD 104.7 million as at end of 2019 compared to SGD 127.65 million as at end of 2018. So the cash and cash equivalents we noticed is this area, some significant decrease was mainly because, as I mentioned earlier, at the end of last year, we draw down the bank loan of about SGD 37 million.
On the other hand, there are also some decrease in the other investment, mainly due to redemption of investment during 2019. Uncompleted contract buyers' increase was mainly due to just the timing issue.
Our client bank accounts at the end of 2019 is close to SGD 411 million versus SGD 313 million in 2018.
This one is the equity and the liabilities. So our shareholder equity is about SGD 90.06 million as at end of 2019 versus SGD 85.56 million at the end of 2018. After including noncontrolling interests, total equity is about SGD 89.6 million versus SGD 85.35 million.
Total noncurrent liabilities increased by -- significantly was mainly because of the nonconversion of the lease liability, which actually is obviously lease is from.
And for the current liabilities, at the end of 2019 is about SGD 54.9 million versus SGD 71 million as at end of 2018. Obviously, it's mainly due to the reduction of the debt. We paid off the bank loan at December 2019. On the other hand, there are some increase in uncompleted contracts under sellers. I think this is mainly due to timing issue. So total liability is SGD 67.5 million as at end of 2019 versus SGD 72.6 million as at end of 2018.
Lastly, will be the slide, Page 25, which is a proposed dividend for financial year 2019. So the final dividend per share is SGD 0.09. Ex-dividend date will be 4th of May. Record date and time will be 5th of May at 5 p.m. Payment date is 19 May 2020. So the dividend final -- final dividend per share is the same as 2018, which is SGD 0.09. Subject to shareholders approval at AGM on 23 April 2019 (sic) [ 2020 ]. Total dividend for 2019 is SGD 0.0315, which is same as 2018.
Lastly, something about the continuation of the quarterly reporting. So you also -- you all know that SGX has recently adopted a new risk-based approach to quarterly reporting from 7 February 2020. So under this, only companies with higher risk are required to perform the quarterly reporting.
Although we are not among these companies selected by SGX that we decided to carry on with the quarterly reporting in a full format. The reason is because we strongly believe that transparency is the key to give the investors the information they need to know about the company, its goals, the vision, and we need to give it in a clear and timely manner. So we decided to continue leading the way in maintaining high standards of corporate governance through the continuation to the quarterly reporting.
Lastly, in November 2019, iFAST Corp was selected to be one of the 36 listed companies to be included at 2019 SGX Fast Track program. This program aims to affirm listed issuers that have been publicly recognized for high corporate governance standards and have maintained a good compliance track record. This serves as a recognition of our commitment towards building a strong compliance culture and continuous efforts in adopting the best practices to achieve sustainable growth in the long term. So that's all for me.
Thank you. I'll carry on. Yes, I'll move on to the section on goals in 2020, the current year. I think firstly, I'd like to start off by saying that over the last few years, we have actually been working hard on ensuring that as a platform, we are as comprehensive as possible. We keep upgrading our capability. Certainly, that have actually brought us positive effect. And as a result, that we have continued to grow. We believe that as a result, with this effort as well, I think in the years ahead, we will be able to continue to grow.
So in terms of the goal this year, of course, is to scale up further in terms of the business that we have in the various markets that we're in. We feel that, yes, given all the things that we've done, I think the pace at which we can grow should be able to improve or accelerate going forward. And certainly, if you talk about the overall opportunity in the markets in Asia, we know that this is a very big market. I think we're just in tip of the iceberg in terms of where we are today.
The other point I would like to mention for the current year is with regard to the operating expenses as well as the profit margin. I think you actually have noted that over the last 5 years since we conditioned, we have actually been growing our AUA and growing our net revenue. However, in terms of the growth in profitability, it hasn't been as clear. And the main reason is that we have taken the view in the last few years that it's important for us to ensure that as a platform, we're as competitive as we need to be. So the costs have gone up because we continue to keep on increasing the overall investment into our overall platform.
Certainly, that investment in terms of upgrading of platform will continue. We also feel that we have gotten to a stage whereby a large part of the key infrastructure that's required for platform already in place. And with that, while continued investment will continue, I think the pace at which we grow our expenses will start to be moderate. So for this year, we essentially -- I think this is the first time we're doing that, but we essentially pinned down some specific numbers in terms of estimate as far as operating expenses are concerned.
So we're estimating that the operating expenses for the year will reach between SGD 59.9 million to SGD 61.4 million just to make it easier for investors and analysts to do their projection. I think the -- we can't really give any projection as far as revenue is concerned because a number of things are not in our control, but expenses, to a large extent, it is within our control. So we're basically then giving a better -- some kind of guidance in terms of where we expect to be.
Clearly, we aim to be able to grow revenue faster than expenses. And because of that, we are aiming to be able to increase our profit margin as well. I think the last few years, as you find, our profit margin hasn't been optimal considering the business model that we have because our business model is one whereby it's actually meant to be scalable. As we continue to grow, we ought to be able to find the benefit of the improving scale and improving margin, et cetera. But that hasn't been obvious in the last few years. And certainly, going forward, we hope that, that become more obvious.
By having said that, I think the expenses that we have estimated for the year does not take into account a successful -- a potential successful application for digital banking license. If that is in this successful, then certainly is good news and -- but it may also mean that we have to start increasing some expenses in the second half of the year.
So which leads me to this topic about the application that we've put in. So we have put in an application for the digital wholesale bank license in Singapore. at the end of last year. MAS reported that there are 14 applicants in this category. So we are one of them. Interesting to note that majority of them seem to be a foreign company and overwhelmingly Chinese company it seems. Well, we'd like to think that we do have a decent chance because I think we are in our view one of the most successful local fintech company, if not the most successful.
We noted in earlier release that, yes, we have, yes, generated over SGD 100 million in cumulative profit over the years in Singapore itself. I don't think anybody else has done that in the fintech space. In this application, we went in as a consortium, but we are the one leading it. We'll be taking a 65% stake in the proposed digital bank.
I suppose at this point in time, I wouldn't be able to go fully into the business model and so on because, firstly, we need to see whether we're successful. But I'd just like to mention a couple of key points. And I think the key point I'd like to mention really is that when it comes to banking, I think there are really 2 main components to be looking at it. It's taking in deposits and then lending up money. We note that most of the applicants that put in the application are the lending side of it. But our view has always been that banking is as much about or perhaps even more about the deposit side of the business. How do you ensure that you can take in deposits at competitive costs? How do we ensure that without being an extremely high interest rate, right?
The investors would actually be willing to put deposits in advance. I think that is actually an important part. So in our case, that part of it is really about the wealth management business. And we are looking beyond just Singapore, we're looking in terms of the possibility of building a global bank. And we believe that this is actually an exciting opportunity, and we are in a very good position to be able to tap to the opportunity.
Singapore has -- on Page 31, Singapore has established itself as a wealth management center for the region and increasingly for the world. But I would say that so far, that segment of business is largely in the private banking space. I think in the digital age, the opportunity is certainly far bigger than the opportunity we're eyeing is really in, what we call, the mass affluent market and for foreigners who are happy to put some money, open bank account in Singapore for money in Singapore. I think that is actually a big market that is not properly technical. And we see ourselves as in a very good position to tap to that opportunity.
And of course, with the deposit coming in at sufficiently competitive cost, then the lending side of business can really be that well because you need to be able to ensure that it land to good quality customers, and good quality customers need to want to know that, okay, we're not asking for an overly higher interest rate. So that's why it's interrelated.
But for this segment then, we feel that the focus for us will really lending to the SME as well as ourselves as a wealth management platform. Certainly, that is one segment of business that we have not properly developed, but if we are successful in a bank, then we can actually develop that as much. So that' in terms of, yes, the segment, our goals for 2021, our move on to bank segment.
The performance trend, Slide 32, 33. There's a chart that you see typically the AUA breakdown. Singapore is still about 65% of our AUA. In terms of products, Unit Trusts is still at the core, 82%, but I think the other segments are actually growing at a faster pace.
Slide 34 shows the chart on the net revenue that we had, how that has grown over the years since 2004. So we have generally been growing and the recurring income that we have is about 80% of our overall net revenue.
Margin. If you look at the margin in terms of net revenue as a proportion of the AUA, then that has remained quite stable over the last few years. There are additional numbers. I wouldn't run fully in detail. But if you look at Slide 37, that shows the different markets. So you can see that Singapore, so your biggest contributor, SGD 42 million in net revenue. And then we have Hong Kong, Malaysia all growing. China hasn't had a good year last year. But I think in terms of the progress we're making in the last couple of quarters, we're certainly expecting that 2020, right, we'll see a lot of progress.
So these are additional statistics for you to just refer to further. In terms of profitability, you'll notice that Singapore actually, for the year as a whole, we see a decline in profitability, even though our business actually grew in recurring net income. The key reason is really that cost in Singapore went up, and that's also partly because Singapore takes up quite a bit of the overall costs and that the group put in, in terms of developing new capability and new investments and so on. Hong Kong, Malaysia continued to grow. China is still, yes, making losses.
This chart on Page 42, Slide 42 and 43 as well actually shows the transaction volume for the bond's business that we have. That continues to be an area that we believe to have a lot of potential, and we are still in initial days of stepping into this opportunity. I've talked about it some time in the past, but I think as we move on, it's a year that I'll come back to in the quarters ahead because we think that a lot of things can happen here.
The other slide would actually contain some more detailed information about the individual market, right? I won't run through in detail. I'd like to note that in Singapore, we're just being informed by Singapore Exchange that we won the award being the second -- fastest trading member for SGX for second year running.
We are still on the smallest broking member in Singapore because we are new in the space, but certainly, we're making progress. And we hope to -- we believe we can continue to make a significant progress way before. I will stop at this stage, and we're happy to take any questions that anybody may have. The Zoom is first time we are using this for the purpose of investor briefing. I do hope that you all can hear us clearly and it works well. If it doesn't, then please give us feedback, and then we'll see how to improve it in the future sessions. Yes, does anybody have any questions?
[Operator Instructions] Before the session, I got 2 questions from one of the shareholder about our China business, about the PFM, the private fund management license that we have been working on and the other one is on the joint venture that we've announced, Raffles Family Office, asking about the progress on that.
That is actually still being sorted out in terms of the different parts of the paperwork and the requirements to get a license and setup of a company fully in place. So it hasn't actually started contributing to us as yet so far, but we expect that to start to do so sometime this year.
We announced a few months ago that we have a joint venture with Raffles Family Office, it's actually an EAM sort of based mainly in Hong Kong, but we -- because we have acquired Raffles established in Hong Kong, they have a lot of clients work from China.
So the idea really is to be able to tap into the client base that they really have for Chinese and who are being advised by them in Hong Kong and Singapore, but these clients generally will have a lot more wealth onshore in China, and that was -- that's a much part of the thinking. And because we have a platform in China, we formed a joint venture where we take minority stake. And we hope that this business can be interested going forward.
Are there any questions?
Yes, sir. This is coming through also online. He asks, if we get the digital bank license, how are we funding that?
So our proposed stake is 65%. So if we are successful, we intend to capitalize that at about SGD 125 million at an initial stage. 35% will come from our Chinese partner. We will be looking at coming out of 65%, which should be about SGD 80 million.
We are expecting that to fund it, it'll be a combination of some existing resources that we already have, some bank borrowing and some equity raising likely to be a fast top level as well. Yes, so if we are successful in getting a license, then we think that there's likely to be a need for us to raise of capital. I think that's we're looking. I think if we're was successful in being a banking license -- getting the license, I think that is certainly a very exciting opportunity. We don't foresee any issue in being able to raise that successfully.
So thinking of SGD 30 million, so you're talking about SGD 80 million in 3 different methods. So internal bank borrowing and everything, so around that stuff?
Yes, the final amount remains to be seen, but I suppose something of the order of SGD 30 million, SGD 40 million could be sufficient. But what's the eventual number, I think, at that point in time I just don't know.
So what's your relationship with present partners...
Not exactly. I think this thing arose because they were looking -- they were interested in applying for the banking license as a minority shareholder, and they were looking around for potential partners. And iFAST was recommended as a possible partner and then we met, had discussion, and we find that there's a good match in terms of the direction, ambition. And that's why we decided that we should partner together.
So the partner that we have, Yillion Group, I mean, they run a digital bank in China. And they know for a fact that there's tremendous demand from a lot of the Chinese to actually open bank accounts in Singapore. And even based on that official guideline that is in place by the Chinese central government, the ability to build this part of the business, right, is actually for sure very tremendous.
And what's the ROE, the target ROE on the digital banking, your hurdle rate now?
We are actually internally projecting that, yes, after 4, 5 years, I think we can hit 20% in terms of ROE. I know that most banks are doing well below that. I feel it's a function of the overall business model. Cost is part of it, but I think it goes beyond cost. The other part really is the business model.
So internally, we talk about this concept of platform banking, right? So traditionally, when bank built the business, I think deposit is -- you think deposits are entirely on your balance sheet, all right? So whatever deposits you take is on your balance sheet, and that actually requires a capital ratio and then you'd like that up.
So that ability to actually generate a good ROE then becomes somewhat limited by that. But if you look at what we have been doing as a platform and what we potentially can do as a bank or perhaps what we are already doing with client cash today, we're actually having a business model whereby we're essentially on the client cash. So if you look at the trust account that we have, I think we talked about SGD 410 million that David was mentioning. So I think over SGD 300 million of that actually in what we call the cash account of the client.
So these are actually client assets that we take, we put it in the bank, all right? And what we essentially did was to take that as spread out among a number of banks, well-capitalized banks. And then we actually keep a client a better interest rate than what the banks are able to do for savings account and yet we keep a decent margin for ourselves.
So essentially, we're handling cash the way the banks actually are handling, but we don't have to entirely use our balance sheet for all the cash, all right? So basically, the trust account that we are doing today in terms of how we manage that, how we earn the fee income. Some of the concepts will be plugged to how we run the business successfully in becoming a bank. So we call this sort of telephone banking, all right?
And sir, you talked about a figure of SGD 300 million in the -- your SGD 410 million trust accounts and SGD 300 million in that money market [ sort of ] the cash on cash. What would you see that growing to? Let's say that you take that 5-year outlook, your 120 capitalization in this bank. Would you see that scale of business growing?
You're talking about the platform? You're talking about...
Once you go to -- as you said, you need to get digital banking licenses to grow that type of service fee income using those kinds of structures. In your projections where you're getting to 20% ROE, how important is that in there? And what [ size ] are you doing there?
Yes. So in terms of the source of deposit, we expect that part of it will come from the iFAST ecosystem that's really there in terms of -- on the platform side. And then part of it will be directly for clients who open account. But if you think in terms of 5 years, I would imagine a reasonable number for the bank, for the digital bank, 5 years to be SGD 10 billion in deposit, all right, of which we expect that a substantial portion, possibly half or more of that SGD 10 billion come in the form of this platform banking concept, which means this are essentially fee income, all right?
And the portion that we actually use our balance sheet on, that will actually be on potentially even a minority part of it. And that's how we can actually ensure that we have a good level of fee income and have a high enough capital adequacy ratio and high enough ROE. I think that's the way we look at it.
So this -- so we are a platform. So the concept of a platform for Unit Trusts is what we start our bid, right? Of course, years ago, the banks used to sell mainly the Unit Trusts, but they evolved to sell the [indiscernible] product. So distributors are asked, we came in, apply that to Unit Trusts. And then as we move on, we apply that to more product, right, all the different investment products.
And if you think of it, why can't we apply that to cash, especially cash in different currencies, U.S. dollar, RMB, euro, et cetera. We can take the money, put in banks with -- rated AA and the clients feel very safe. And therefore, our balance sheet is an asset-light capital business model. So that is actually a large part of the thinking.
You mentioned that retail license was [indiscernible]. In the end [ you take ] the wholesale. What part is the -- what is the [indiscernible].
Yes. I suppose the primary thing really is the capital requirement because, yes, as we studied further, then we actually realize that in terms of the opportunity, that we're truly eyeing which is really to bring banking to the international level and being able to give better rates, better seamless transfer across borders. That can actually be achieved by just the wholesale bank license.
Wholesale bank license, by the way, is what most of the private banks are using as a banking license. So we're talking about a difference between SGD 100 million capital and SGD 1.5 billion eventually for the full license. And we decided that we should then focus on applying the wholesale banking assets because I think we can achieve what we need to with a much lower capital requirement.
Go ahead, Yes.
Yes. You said do you expect positive progress in China this year...
Not in terms of making money yet. But in terms of, yes, growing deposit further, but we expect that there will be continued losses this year in China.
At similar level?
Yes. In the overall context of the size of overall group business and so on, you could say, yes, that kind of ballpark, that kind of level.
And where do you see the progress coming?
The progress will be -- the first progress, of course, is the volume. It is the volume, it's the AUA and it's about making sure that we get to a stage where we achieve what we call a breakthrough. Breakthrough, meaning we know that on each month, you just -- volume will keep coming in. And I think we're there for Singapore, Hong Kong, Malaysia. I think we're at a stage where even with the coronavirus situation, then we actually fund it. Actually, we -- our important customer situation so far as far as the business is concerned because the inflow continues coming. So that's what I call the breakthrough.
China, of course, we are making some progress, but we are still at a level where we have to work quite hard to push it to a more meaningful level. So progress in 2020 to us would mean a more meaningful increase in overall volume. But in terms of profitability, we expect that it's not there yet for 2020.
Are there any further questions? Yes.
Actually your AUA subscription high of SGD 10 billion this quarter. Growth from mid-last year seems to be [indiscernible] and just give us the [indiscernible] in general. And your third quarter numbers a bit like that, I think in terms of AUA, it looked like it [ came up ]. Just wanted to get some color on like how are you seeing volumes AUA coming, especially for Hong Kong [ this comes out ] in terms of the breakdown [indiscernible] the split between the countries. It looks like [indiscernible]. How has this been? How do you see [ growth outlook ]? [indiscernible] Do you see some steam [indiscernible] the virus [ provision ] coming in? What are your thoughts on that?
Well, if I take the Hong Kong market, Hong Kong volume on its own, it actually has continued to grow through the protest period. We do see the requests coming from our Hong Kong B2B partner to be able to bring some money to Singapore, and we have facilitated some of that. But in terms of actual flow, it's not a big number as far as we are concerned, but it is an increasing level of interest.
But within the Hong Kong business itself, I think you'll actually find that yes, we're actually putting a growth. So it hasn't actually translated into any big impact on the overall number, other than the market fluctuations and how they impact the overall short-term number. But otherwise, you find that Hong Kong continue to grow just as Singapore and Malaysia has continued to grow. So that is so far what we have seen. Yes.
Do you talk about the OpEx coming off the substantial sales this year. You've been running long enough now to get a sense of the natural OpEx cycle in what you do. I mean we keep lifts and drops in the operating expenses. So how long do you view this sort of harvesting part of the cycle? Do you expect it to last just as a sort of 2- to 3-year period of lower OpEx? Or do you really think this goes on forever? Or when would we expect to see another lift in OpEx?
Yes. I won't call it a cycle because not exactly a cycle. The increase came largely as a result of the fact that we went from the platform that does Unit Trusts to one that actually does a whole range of products, including stock broking, bonds, et cetera.
And also the other part is getting our overall IT capability so that we can tackle ever bigger project. So I see it, it's not really a cycle. So it is more an increase that we had to go through in a bigger way in the last few years. But where we are today, I think, as far as the current platform business is concerned, excluding the banking, I think we have seen the biggest jump. And I think the increase from here will moderate because, yes, to go from being an entity that does Unit Trusts without any real-time pricing, but start doing a real-time pricing or stock broking with EPF, et cetera, that requires some additional investment quite significantly and so on.
So from here, the platform side of it, I'd say, yes, it doesn't have to increase very much. Any potential more significant increase will come from something [ from other ] bank if we're successful, [ that's what we would see ].
And if you were successful on the OpEx side, if you were to -- in more of a construction and [indiscernible] virtual bank, [indiscernible] your projection, this year at least, how much your unit flow [indiscernible] this isn't in your initial number of [indiscernible] and how much [indiscernible].
You're saying for the banking side?
Yes.
Yes. At this point in time, we are not ready to give some actual tangible number as far as the banking side is concerned. Yes, firstly, we would like to see whether we're successful. But what we can say is that we would -- we expect to be spending less than what most other digital banks do. That's typically what we expect because I find that when most of them actually went to the business and there's a bigger [ impact and ] so on.
For us, we have our capability in-house. We will be building it in-house. So we don't expect a massive amount, but certainly, there will be an additional investment.
Mr. Chung, we have a question from [ DN ] from [indiscernible].
Just follow on Michael's questions regarding your virtual baking license. Just could you share with us how much is your estimated costs for the whole process including cost of funding, hiring, everything?
Yes. So -- yes, we certainly have our estimates internally because we're putting a very detailed application to MAS. But I think as of now, maybe not really appropriate for me to be giving all the detail. I think hopefully, in the next quarter or quarter after, as we make further progress, then we can look at more of those details further.
Right. Okay. And my second question to you is about because when we look at the profit before tax by market, and I'm -- I notice that some of the costs are moving to Singapore market is for other markets. So if we fairly allocated all of these expenses to our markets, will Singapore -- sorry, Malaysia and Hong Kong still book with positive profit before tax?
Sorry, I missed the last part, so Singapore, Malaysia and Hong Kong, what? I missed your question.
I mean when we look at profit before tax for markets, by market, right? So we see Malaysia and Hong Kong reporting consistently positive profit before tax, but Singapore carries a lot of costs for other markets as well. So if I fairly allocated all these market -- all these expenses [indiscernible] to all markets, I think in [indiscernible] and Malaysia and Hong Kong and there is just a positive number [indiscernible] OpEx?
Would they register positive growth as far as profit before tax is concerned, right?
Yes. Yes.
I think I would say that I don't discount that in some quarters, it's possible to see that, yes, some quarters may not be positive growth for certain -- whether it's Hong Kong or markets, if you take out a bigger share of the overall cost. I think that could very well be the case. But I think by and large, I would say that the trend is certainly one whereby they are seeing real growth in terms of profitability. If you take a whole-year basis, all right, whole-year basis over the last 1 year, 2 year, then certainly, there are seeing real growth in terms of overall profitability.
Can you maybe give an update on some of the smaller markets? So in past, you spoke about EPF in Malaysia. Wanted to know whether that's moving ahead and what it's worth to you? And what you think it will be worth? And also your recent investment -- increasing the investment into India. A little bit of an update on that would be good.
Yes. So if you take Malaysia. Malaysia, yes, last year, in terms of revenue and profitability, we grew. I would say that Malaysia, for last year, was in a situation whereby the growth in the core investment business was a bit slower than the growth rate of the previous 2 years because the Malaysian market as a whole actually did quite poorly.
I think it's one of the worst performer as far as the stock market is concerned around the region for 2019. So that actually moderated the growth of our overall AUA in Malaysia and sales volume in Malaysia. But last year, we had a benefit of the fintech projects coming in that actually brought us some IT services revenue. So that actually ensured that overall, Malaysia, actually, we saw a pretty decent growth rate.
Going to 2020, we are actually expecting that the fintech IT Services segment of the business will have a good year this year as well because there are certain additional project that we have actually secured as well. I think we start off the EPF project where we did that. That actually led us to a situation whereby the other fund houses were keen to start to engage us to build -- help build the ecosystem. After all, we are the one that linked them to EPF. So that brought additional project from the fund houses.
I think for this year, we expect to see more of that from the fund houses. At the same time, I think there are also some -- one big project that we saw secured recently that is -- it involve a bit of the cash management type of services, linking that to some payment player and linking that to the money market fund. So it is basically a project to make that simpler. So that's actually quite sizable as well. So because of that, we actually expect that IT services revenue in Malaysia will do well this year, will have a decent growth this year.
So it's kind of considered to -- there's a payment [ improvement ], and essentially putting their float into money market, and you were the intermediary doing that?
Something like that. Yes. But for this particular project, we are -- our role is more of an IT player. Yes.
Okay. So you're not making a [ feel to ] float? you're making [indiscernible].
For this project, not exactly, yes. For this project, I think we're benefiting more as an IT provider. We do have our own sort of project in different part of the business that sort of try to -- yes, link the cash services, cash management services part and there's an opportunity that we see as being interesting in the years ahead. For this project that we have secured, yes, we are IT player.
And India?
India, we have been gradually increasing our stake in the business. We -- our effective stake currently is about 36% in India. India is still at a stage where it's still not profitable yet, still making some losses to the tune of, as a overall business, probably in the region of SGD 4.1 million. And so we -- share of that losses have been in the hundreds of thousands.
Seeing progress, but I suppose it has been slow in the last one year. And certainly, expecting that, yes, we'll grow further. But yes, just waiting for the point where we hit the profitability.
And to get this up to 36, this is you buying out existing shareholders...
These are new money that has gone in.
New capital?
New capital that is going to...
Pay for these [ Q4 ]...
Or rather, yes, the latest one is essentially new capital going into the India business. Yes, I mean in the past, they have been times where we bought some existing shares but the latest one is new capital going to the business.
We have another question from [ Rye Wooten ].
This is [ Rye ] from Bank of America. Just one question pertaining to the digital bank license. I understand it's still quite early to ask anything specific, so I'll just keep it general. Given Singapore is quite a e-bank market, can I just ask what iFAST can offer the central target market that the incumbent banks or finance companies or even some of the P2P lenders in Singapore, what is -- what you can offer then that [ e-player ] cannot? Or put it another way, what is the strategy of [ keeping ] the existing players?
Okay. Yes. Yes. So I think the first point I'd like to note really is that I think when people think in terms of banking, getting in terms of banking in the current domestic market. So viewed from that perspective, then Singapore is a bank -- is a place that's quite well banked. But if you really look at the opportunity that the Internet world offer us today, I think we are looking at a world that is actually shifting quite rapidly.
You find that a lot of the Internet giants, especially those from the U.S. and increasingly some from the Chinese market, these players are able to continue to grow and to tap into the opportunity not just within the country, not just within U.S., but really the ability to actually go beyond that and bank to the customers from all around the world.
Banks today, of course, you have a lot of global banks who are present in many different markets. But the business model isn't exactly global yet generally. And what I mean by that is that banks will actually [ assume mid ] to stay in one country -- go to -- banks are generally still going to a different country and then doing business directly in that country, right? So they're globalizing by setting up new offices in different markets.
I think in the banking space as well as the fintech space, generally, we feel that there's an opportunity. So if you build a bank that is truly global in nature, meaning you can build a bank in Singapore that can take deposits from all over the world, from the region from all over the world. And that is really the true power of the digital bank rather than having to go to 100 countries just to do business is 100 countries. And that is what we're interested in.
So if you view it from that perspective, then I would say that the digital banking world is really an emerging world. Emerging world because how many people are truly opening bank accounts cross-border? It's still a very small number. Singaporeans may not find that there's a need to open account cross-border today, generally speaking. But you actually find that the other way around, there's a huge level of demand. Lots of people from other countries, including China, want to open an account in Singapore and be able to put some money here. And if you can do that in a digital manner without coming here physically, then that essentially is a big opportunity. And that is the opportunity that we're eyeing as well as the deposit side of the business [indiscernible].
So if we're successful in this space, then I think we can do that well, and we can do that much better than what the local banks do today because they are essentially not too interested, right? Because compliance they find a bit to troublesome for them, so they don't want. So once we can do that on the deposit side, then that give us the ability to then make a big difference on the lending side.
Today, there are many players in the lending space, starting with China, right? We have thousands of P2P players, but most of them have died. And I think almost all of them were probably either died or be merged eventually. And the problem with most players in the lending side of the business is they don't have source of deposit at low cost. So if you don't have a source of deposit at low cost, then when you look for borrower, you have to look for borrowers who are willing to pay double-digit rates, which means this can be a very high-quality borrower. And that, to me, is the crux of the thinking, but we want good quality borrower.
We may be looking for perhaps SMEs, smaller companies and so on, but there are good quality SMEs out there, just like iFAST was before we got listed. We're a good quality company, nice business, good cash flow, but we need capital sometimes.
And the incumbent banks are not too keen to do this part of business because it takes too much effort. So I think there's good opportunity in this space. And if we're successful on getting a license, I think we can do that well compared to most of the existing lending players. So that's the gist of the opportunity that we see, which is why we're actually very keen to actually be pursuing this opportunity.
Yes. Perhaps we have one1 last question? Yes.
We have [indiscernible] that you're trying to be [ aggressive ] submitting your license had they been [indiscernible].
Yes. They have been coming back to us for -- they have additional questions to our overall business plans. So I suppose you are asking whether they're working on it. I think they are working on it based on the questions.
Okay. But have they given any indication at all of...
I don't think MAS will give any indication. I think they will get more formal approval. I suppose we just have to make our guess on the basis of what's happening in the meantime.
Was there any particular part or segment that they were a bit more [indiscernible] or any color you share about the [ depth of process ] [indiscernible].
I think so far it's a bit more of asking us to clarify different parts of the business plan and asking for further information and more details on the different parts that we have described. I think that's the current situation.
And with that, I think we have come to the end of the briefing. Thank you, everyone, for coming.
Thank you.