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Hi, everyone. Welcome to iFAST Corp Second Quarter and First Half 2022 Results Briefing. We will be starting today's results briefing session soon. And I would like to introduce our CEO and Chairman, Mr. Lim Chung Chun, who will be joining us for this results being remotely. And I'll pass the time over to Chung Chun.
Hi, everyone. Good morning. I'd like to move ahead and present the second quarter results that we have just announced on Saturday. I'll start with the key summary. Sorry, before that can you go back to the content page? Yes. So for the purpose of today, I will run through the whole presentation. I'll just run through Section 1 and 2. Besides that, Section 3 and Section 4, there is quite a bit of information. I will run through that. I leave it to you to run through on your own. And if you have further questions, then we can take that later on. So going on to the key summary. So for the quarter, the group's AUA declined 5% quarter-on-quarter to $17.7 billion, as of 30th June 2022. On a year-on-year basis, AUA rose just marginally 0.8%. During the quarter, we actually continued to have positive inflow. So during the quarter, we saw a positive net inflow of $0.59 billion. That is still a healthy net inflow number considering the very tough market conditions that we actually have gone through. Typically, for the group net inflow is actually a number that we track quite closely because we believe that, that is actually the best indicator of the overall growth potential for the group in the long run.
In the short term, the AUA of the group is actually affected by overall market environment. If the stock market goes up, then there will be a positive benefit that we get. If the stock market goes down, then it will actually be negative. So essentially, during the quarter, we saw that net inflow was actually a positive $0.59 billion. Unfortunately, because stock prices generally saw a significant decline, which is why we actually saw the AUA decline 5.1% during the quarter, and on a year-on-year basis, we're about flat.
During the quarter, total net revenue for the group grew 13.3% year-on-year to almost $30 billion in the second quarter. That's despite the fact that global markets have gone through a very tough period. Of course, the second quarter numbers included initial contribution of $3.9 billion from the iFAST Global Bank. Recall that we acquired the bank early part of the year, and the acquisition was completed at the end of March this year. So we started to have the initial quarter of contribution from the bank.
The second significant development in this particular quarter is the fact that iFAST India Holdings, which is an associate company of the group, has decided to exit the onshore platform service business and be able to focus on global fintech solutions. With that decision, and we have some restructuring, iFAST Group has provided a onetime estimated impairment allowance of $5.2 million. And because of that, the group reported a net loss of $2.69 million in second Q 2022.
2022 will be a year where the group will see some overall growth in revenue as our expectation. So group revenue, we still see some growth, but net profit will see a substantial decline. This is happening as a group because incurs impairment charge for the India business, and there's initial operating losses from the bank. Also, overall, as a group, we have actually been growing. And because of that, we have been growing our overall headcount as a group and because of that, operating expenses grew 22% year-on-year. If I strip out the expenses from the bank, operating expenses grew 22% to $22 million during the quarter.
Next slide. The group's operating expenses are increasing even as revenue growth moderates in 2022. That's because the group is preparing for the next couple of years. So we expect that the group will be growing quite substantially, particularly the ePension business, which actually become operational starting 2023. And the group is also positioning ourselves for the global opportunity arising from a global -- small globalized wealth management platform. So overall, as a group, prepare for a far more exciting years in the next few years. In the last couple of years, we have actually been gearing up our overall capability as a group. Because of that overall headcount resources, investment, IT infrastructure have grown, and that's reflected in the increasing operating expenses.
Going forward, beyond 2022, we expect that between '23 and '25, we'll see a robust ramp-up in our overall group profitability. So 2022 is a year where we see a significant decline, substantial decline in profitability, but we are essentially preparing for exciting few years ahead. ePension division will start to become a strong contributor to 2023 onwards. So actually beyond 2020, we expect to see accelerated growth momentum. And we expect that revenues and profitability will reach new highs in 2023 as ePension divisions start to contribute more substantially from third Q 2023 onwards.
Currently, the -- if you recall, we actually have upped our guidance that we have provided in April 2022, we released the first quarter result. That guidance at this point in time -- at that point in time and we have not changed this official guidance, we actually assume that the contribution from ePension project will begin in fourth Q. But the way the timeline stands currently, we actually expect that we should see the contribution starting third Q 2023 instate. But we'll wait for a later date before we provide any formal change in the guidance for the Hong Kong business.
For the second quarter, we have recommend -- we have declared a second quarter interim dividend of $0.011 per ordinary share. That's the same as the dividend that we declared 1 year ago. So despite the fact that during the quarter, we reported a loss, but the group has sufficient accumulated retained profit, and we expect that while we are having a bit of a setback in terms of profitability this year, the group remains in a very strong financial position and growth will resume next year onwards. So the group decided that we'll maintain the dividend rate of $0.011 per share, similar -- the same level as what we reported in second quarter last year.
Next. This particular chart shows the AUA chart that we already showed. As I mentioned earlier, it declined quarter-on-quarter. Essentially, the decline came because of the decline in the value of our financial assets globally. Stock markets were tough. Bond markets were also tough. As I mentioned earlier, this decline in AUA sort of offset the fact that we have -- we continue to have a healthy positive net inflow.
Next. So on the net inflow number that I was mentioning, this is a chart that shows the negative inflow number. So in the first quarter, we saw a net inflow of $0.59 billion. If you take the first half, we saw a net inflow of $1.26 billion. Lower than what we saw in the first half of last year, because first half of last year, we saw a net inflow of $2.1 billion. But essentially, at $1.26 billion, we feel that that's actually still a healthy set of numbers. Importantly, when net inflow continues to be positive, then in the long run, we expect that the overall AUA is a number that will continue to be able to grow. Next. Next, I will just quickly move on to -- touch on the key numbers. Revenue during the quarter grew 5.8% year-on-year, that's the gross revenue. Total net revenue with a growth of 13.3%. Of course, in terms of operating expenses, we actually saw that there's a substantial increase of 49.9% during the quarter. I mentioned earlier that if we strip out the banking expenses, then the expenses for the group grew 22.3%. The rest of the increase came because of the fact that we have an initial first quarter contribution from the iFAST Global Bank.
The quarter, as I mentioned earlier, we saw an impairment loss of $5.2 billion related to the India business. So, yes -- so as a result of that, net loss during the quarter was $2.69 billion. That is a quarter where we go into losses. Going forward, we expect that we'll move back into profitability. Next.
These are the numbers for the first half. I won't run through the individual detail, but essentially, for first half, we continue to register profitability despite the loss in the second quarter. But of course, there was a substantial decline in terms of profitability. Next.
This page shows the trend for the last few years. Essentially, overall business and revenue-wise, we have continued to grow. But 2022, we're seeing a step-back in terms of overall profitability. This is a chart that shows the overall margin for the group. First half is down because of the fact that yes, second Q and first Q has not been as good. Next.
Return on equity continued to step back as we move forward. That also reflected the fact that there was an increase in shareholders' equity in the earlier part of the year because of the 4.8% share placement that we actually did.
These financial indicators are self-explanatory. I'll just highlight that we continue to essentially be in a very strong position as far as cash position and balance sheet is concerned. No debt. And the shareholders' equity currently is at $226 million. Next.
This is a chart that shows the net cash position of the group. The way we have presented this is to show the cash and cash equivalent, but we also show the amount of customer deposit the iFAST Global Bank has. So if you strip that out, we -- as a group, we still have $110 million excluding the customer deposits. So we are certainly in a very strong financial position.
This group operating cash flow continued to be healthy, $16 million for the first half. Next. Capital expenditure during the first half was about $4.6 million. We are targeting that [ it will be ] $2 million for the year. There's the number of shares. These are the balance sheet. I won't run through the detail. That's an amount of cash that we have. That includes -- that essentially will be the customers' money held in the trust. Dividends, as I mentioned earlier, $0.011, same as the year before.
Next, I'll talk through a few key points in terms of development during the quarter. Firstly is regarding the iFAST India associate. The group owns a 41.5% stake in iFAST India. It's a business that we have actually run for quite a number of years. And we were -- yes, originally quite committed to ensuring that this business would grow to a good position. Unfortunately, late last year, the Indian regulator announced a new regulation, which essentially was the banning of the pool account, banning of the usage of pool account. Poll account is essentially is like a nominee account. I think the -- if you look at the overall value of our platform. I think platform's basic value to investors as well as to advisers is basically the ability to make things a lot more efficient for the end client as well as an adviser. And one of the key requirement of being able to run a platform efficiently, therefore, would be the ability to actually operate a nominee account or full account, and be able to handle things on an omnibus transaction and so on.
But unfortunately, the regulations in India have actually -- yes, are moving towards a manner whereby the regulator actually do not want to see the mutual fund transactions being pooled together. They are essentially, right now, only allowing stock exchanges to be able to perform this operation. All over the world, in most countries, you actually find that capital markets services license where there are some working firms, have the ability to operate a pool account or a nominee account. So if we can't then we essentially won't be able to operate platform profitably or efficiently.
So with that change in regulation, we feel that the prospects for the platform business in India for us will actually be essentially not in a good position. As such, the group has decided to take this decision, and we're exiting the onshore platform business. So with that, yes, we have the one-off impairment charge. On a yearly basis, at the operating level, we -- in the last 2 years, we generally have seen a loss of about $0.5 million or close to $0.5 million in terms of share of the losses at the associate level. With this discontinuation of our India onshore platform business, we would expect that the operating loss will go away after the second quarter, but there is that one-off upfront impairment charge.
Let me now move on to have a recap of our 4-year plan. So if you recall, when we talk about our iFAST 4-year plan. Basically, we are looking at 4 main points. One really is to get bigger, better overall as a group. That continues to be an objective that we're committed to. And we are aiming for $100 billion by 2028 in terms of AUA, that remains a goal that we're firmly committed to.
Second point really will be to accelerate the growth of our Hong Kong business. To a large extent, that acceleration will come from the ePension division, and that will start to contribute in -- more substantially from 2023 onwards. At the moment, we're looking at that starting third quarter 2023 onwards. So that will be attracting a part of the group for us over the next few years. And we have that -- that should help to drive our overall group profitability quite substantially as well.
The third part really is to add digital banking and other capabilities to our overall platform. So this part is also something that we continue to execute. And we did that at the beginning of this year by acquiring the BFC Bank, which has been renamed as iFAST Global Bank. And the group is currently preparing to launch the digital bank services, and we're in the midst of preparation and development of that. In the next 2, 3 quarters, we expect to be launching that. And the fourth point really is that -- yes, we are moving towards being able to have a more truly global business model.
What do we mean by that? We essentially believe that in the future, I think that investors from all over the world will be looking at -- looking for best wealth management platform from around the world. And investors no longer will feel that they just need to invest through platforms in their own country. They'll be looking for platforms from other countries as well. iFAST believes that we're in a position to be a key wealth management platform and we have additional banking capabilities that serve the needs of investors from different part of the world. Yes. So that summarize the key 4-year plan that we have actually talked about. Next. This slide is just a bit of a recap in terms of what we have guided for, for the Hong Kong business as a whole. This is a guidance that we issued on the 23rd of April. This guidance, if you look at the 2023 number, we actually assume that the ePension division will start contributing in fourth quarter. But the way things are moving, we currently expect that the contribution should start in third quarter of 2023. But as of now, we are not officially changing our official guidance as yet. I think in the quarters ahead, then we'll look at the need for any updated guidance.
And with that, I've completed the Section 2, yes. So Section 1 and Section 2 is the numbers I wanted to officially run through. The rest I will leave it to you to look at the details. And with that, I would like to -- yes, open the floor to any questions.
[Operator Instructions] So we have our first question coming in from Jay. In terms of [indiscernible], does it mean that the India-related AUA goes away, drop to 0?
The answer is yes. Yes, the second quarter number still included the India AUA. I think India AUA has about [ $400 million ] contribution -- sorry, yes, the number from Indian AUA contribution to the group. So [ technically ] on the west, that will start to go away and drop to 0.
$267 million for me, 2-6-7.
$267 million is the contribution from India AUA. Yes, so there's some reduction that we see from that. But if you look at the fact that we have essentially every quarter been seeing a positive net inflow, then the decline that comes from India, we can overcome that quite easily.
Okay, we have a second question. Can iFAST sell its stake in iFAST India and recoup something back, if any?
Yes, we are in the midst of discussions with some potential buyer of parts of the business. We hope to recoup something back from that. But overall, we expect that, on balance, it will still be that significant loss that will be incurred, hence the provision that we have actually made for the second quarter, the $5.2 million.
Okay. We have a third question. Could you please share some color on OpEx comp, whether this quarter's figure would be the new run rate going forward?
I think you can take this quarter's figure as being roughly the new run rate going forward because that also includes the expenses that we have from the bank and so on.
Okay. We have one more question Lee King. Will there be further impairment charges for the India business? And the second question is, can FY '23 be able to achieve operating leverage, earnings to grow faster than revenue?
We expect that the impairment charge for India should be a one-off impairment charge. At this point in time, we don't expect any further impairment charge for the India business. FY '23, we expect to achieve operating leverage earnings to grow faster than revenue. The answer is, yes, we expect that mainly because the ePension division will start to grow substantially. And then, of course, the -- some of the tougher expenses that we had to take in '22, we won't see the recurrence of some of this. So essentially 2023, I think as a whole, we have actually guided that we should see a higher revenue and profitability. I think you'll see the big jump mainly starting the quarter next year onwards.
Okay. We have a follow-up question on India. To clarify, will iFAST still have operations in India post restructuring? If yes, what are these?
Post restructuring, we expect iFAST will only have a very small office in India. We -- yes, we have decided to exit the onshore Indian business. But at the same time, we feel that from the industry, from the advisory community, there will actually be some demand for services related to fintech solutions, related to our global fintech capabilities, as well related to some offshore solutions like digital banking and wealth management platform as well. Because as we noted, increasingly, that there is demand for investors to invest globally, and to actually have some investment outside their home country as well. So the -- we are scaling down the bulk of our presence in terms of the physical presence in India. But we still retain a small office so that we can provide -- continue to provide some of these fintech solutions and global wealth management services to the different partners.
Okay. The next question is, will iFAST book losses on a quarterly basis for the rest of 2022? Or is the group expected to return to profitability for the next quarter on the absence of India impairment charges?
We expect that we should return to profitability, yes, after second quarter.
Okay. One question on recurring fees. How have recurrent fees been performing? Are margins improving?
I think for recurring income, we -- yes, if you look at the different component of the recurring income, we have the trailer fee and the platform fee. The trailer fee essentially is [ quoting ] quite stable. I think as a leading platform, we are in a position to maintain the pricing pretty well. I think if I look at the recurring fee, you'll actually note that in the last 2 years, there was some decline in the [ recurring ] income margin, coming particularly because of the fact that the interest rate environment were actually declining. So on our part, we have some the client cash that is a part of the AUA. And for that, the margin that we get from the net interest income was actually declining because interest rates were at almost 0 for quite some time.
With the interest rate environment now swinging up substantially, the component -- the net interest income that we're earning from the cash has also started to increase quite significantly. So yes, so the positive news on the recurring income is that net interest income contribution should be -- is trending up for us. And on the whole, we actually find that our overall net recurring income is actually quite healthy. It's the nonrecurring income that in the last couple of quarters have taken a more significant hit from the wealth management -- overall wealth management platform business because transaction volume, et cetera, have actually come down due to the tough [ macro ] conditions.
Okay. We have one question. Could you provide some color on why government's grant is still quite high in the first half 2022? What's the nature and if that will continue?
Jimmy, would you like to take that?
[indiscernible] Hong Kong. The government plan of Hong Kong uptick in Q2. Singapore, the government grant is lower compared prior year, but in a way offset by the government back in Hong Kong since Q2.
Yes. So government grant -- yes, so the answer is the government grant we have that mainly from Singapore last year, but there is still additional contribution, particularly coming from Hong Kong in Q2. Any further question?
Thank you. [Operator Instructions] Okay, we have a few questions coming in. Okay, what does the brand -- I think [indiscernible] might have some tax using -- maybe you can hear your question again. We have one more question on this year. Is there an updated dividend policy to share?
We have not issued a formal dividend policy for the current year. But the general thinking that we have, what we've done really is that in the long run, dividend will be able to grow according to how profitability grows. And for us, of course, in the current year, we are seeing a step back in terms of profitability. But we are also looking at the overall prospect for ourselves, not just in the current year, but in the next couple of years as well. So because in the next few years, we expect that the overall profitability for the group will improve significantly. And because -- that will pave the way for higher dividends as well. So -- and we are in a very strong financial position.
So we decided that for 2022, we -- basically, we will maintain the dividend at a level to what we did in 2021. And then 2023 onwards, then we start to look at being able to improve the dividend in line with growth and profitability going forward.
Okay. We have a follow-up question from -- on Hong Kong, on the grants. What's the nature of the government's grant in Hong Kong? Is that relating to Hong Kong ePension or just grants relating to the pandemic? Will that continue?
Grant related to pandemic until we [ make ] -- We expect some more in Q3.
Okay. So we'll go on to the next question. What is the nature of other investments of $10 million?
This one includes -- because quite you pay back. So actually, this one [ power ] basis. Because in U.K. bank, they say some investment that maturity date will be more than 1 year. So here's the reason why increasing the investment under the [ other ] noncurrent asset.
Okay. We have another question. As our new major shareholder has [ SKM ] communicated with you what are their plans regarding in their stake? Will they be active looking to work review of asset?
At this point, we haven't had -- yes, formal discussion yet with regard to the plans for the stake. They only became the shareholder quite recently.
Okay. The next question. What are some of the risks involved towards the guidance of the Hong Kong ePension targets?
The -- yes, so originally the key risk I was concerned about, also whether there will be any potential delay in the project, because it's a big project. It's a big system that we have to build. A lot of testing, et cetera, to be done. Which is why where we issued our official guidance on the target for Hong Kong, we built in some potential delay in the project. So we essentially assumed a 6-month delay. So that continued to be risk that can be really [ return ]. But as we get closer to the project, then having greater clarity in terms of the actual timing. So the most recent indication is we should see that contribution starting in third quarter, but we will wait for another quarter or 2 before we change any official guidance.
Okay. The next question. Where do you see the bulk of the $100 billion AUA coming from going forward? Is it going to come from China? Or do you see the currency rate percentage split to maintain until $100 billion?
We actually expect that the various countries will contribute quite a bit. Singapore has been our core market. We expect that Singapore will continue to play a substantial role. I -- but probably not at [ 60-over ] percent. I imagine that Singapore can actually, in the future, continue to contribute something like 30%, 40%. We are actually expecting that Malaysia and Hong Kong will continue to grow as well. Certainly, we expect China to be able to contribute substantially to that number.
And of course, not to forget U.K., given that now we have a bank, and bank is certainly something that can help to grow the overall AUA quite rapidly, because we are talking about the simplest wealth management product, which is basically cash. And that is certainly something that can actually help to grow the overall AUA quite significantly.
Okay, the next question. Is the Hong Kong project-related fee quantum roughly in middle of 4Q '21 and first Q '22? It implies higher than 4Q '21, but lower than first Q '22.
Are you referring to the future or you're looking back?
Wong, would you like to maybe just ask your question directly?
I believe this is asking about the Hong Kong project revenue in second Q 2022. So essentially, the number in second Q of 2022 was lower than the number in first Q 2022.
Okay. We'll move on to the next question. How would wealth management products continue to do in this environment? Also, what would the impact to sales be moving forward?
I think in the very short term, certainly, when market conditions are very tough, then certainly, there will be some impact on the overall business that we see. So if I take the last 2 quarters, we actually see that, on average, the volume that we're seeing on stockbroking, especially, that come under some decline. Unit trusts as well, we saw some reduction in overall volume, even though that has actually helped out the -- unit trust volume held up better for us than on the stockbroking side. If you take business such as the bonds, this part will actually have a mix effect.
On the Singapore side, we actually find that the bond business that we have actually had a good quarter in second quarter. I think mainly because of the fact that interest rates have become higher, so the yields that you're seeing on the bonds have become better, too, especially for the investment-grade part of NIM, the better quality company and that gives investors the appetite to actually buy more into these bonds. Bond business in Hong Kong, however, did poorly because the overall high-yield bond environment in Hong Kong has taken quite a substantial hit because of the problems we see in China. So Hong Kong bond business didn't do well. Singapore bond business did well. Overall, of course, the overall volume that we're seeing for wealth management as a whole didn't do so well.
The other part, of course, not to forget, it will be cash and cash management solution. That part actually, in a higher interest rate environment, start to become more interesting because we make better margin. And I think investors will probably find that they probably will be willing to put more money in some of these safe cash solutions that we actually offer.
Okay. We have one question come in. When can the U.K. bank turn profitable? What kind of losses should we expect in the near term?
As we guided previously, we are targeting for U.K. bank to turn profitable in 2024. For 2022, the current year, we have guided that U.K. bank will contribute a loss of about $4 million to the group. That guidance remains for 2022. We haven't issued any official guidance for 2023. But yes, I think hopefully somewhere in the middle year.
Okay. The next question. Will iFAST still receive Hong Kong project-related fees in subsequent quarters? And will their content be similar to Q2?
We will be seeing -- we'll see the [ fintech ] fees on the -- this will be for the project implementation part for the next few quarters until second quarter next year -- until second quarter 2023. And then after that, the operation phase will start to kick in, and that's where the bigger part of the revenue will come in.
Okay. We have one question that just came in. Is iFAST looking on similar pension projects in other countries? A good opportunity there?
We don't immediately have any other pension project of a similar scale as Hong Kong or even anywhere close in terms of scale that we're working on as of now.
Okay, the next question. Well iFAST look to cut its exposure to any other markets? Which markets is iFAST looking at to enter in the near term?
We are not looking to cut exposure to any other market. We are committed to all the other markets that we're in currently. We continue to build on our capability in this market that we are already in. On an EBITA basis, the group's priority is to build on our presence in this market that we're already in, including U.K. with the bank and grow the business from there. Yes, we are not mentally looking physically entering other markets as yet.
Okay. I think we have no other questions. So we will end the session here today. If you have any other questions you can -- okay, sorry.
We have actually one more question that just came in. Are there any guidance on NII or any sensitivity guidance?
Net interest income, I think -- yes, for us, the bigger part of the net interest income that we actually have relates to our operation as a platform, not as a bank as yet. So we don't have actual detailed guidance other than to say that net interest income for us as a group in terms of the margin, hit bottom in first quarter of this year and then started to improve in second quarter and which are seeing further improvement going forward. The banking side is not a big number as yet as of now, but certainly it's something that we're going to work on to put in quite a bit of effort to ensure that it grows very nicely. So that's what we have at this point in time.
Okay. We actually one more question that's relating to the U.K. bank that just came in. Is iFAST U.K. integrating according to plan so far?
Pretty much so. On a broad basis, we are working on -- yes, scaling back some part of the existing business, while working on preparing to launch other part of the business that is in line with our overall wealth management focus. So that's where we are. And yes, next 1 to 2 quarters, we'll provide further details on our implementation.
Okay. I think there are no further questions. So we'll end the session today. And if you have any other questions, you can always contact us at ir@ifastfinancial.com. So thank you, Chung Chun, and see everyone next quarter.
Thanks, everyone.