IFAST Corporation Ltd
SGX:AIY
Earnings Call Analysis
Q3-2023 Analysis
IFAST Corporation Ltd
iFAST Corporation has navigated through uncertain financial waters to reach new heights in assets under administration (AUA), achieving a 1.7% quarterly and a 12.6% annual increase to a record $19.12 billion. This milestone was met despite market instability and was supported by a notable 34% quarterly rise in net inflows, totaling $751 million for the third quarter, and $1.62 billion over nine months in 2023.
The nonbanking segment of iFAST Corporation has shown an impressive performance, with net revenue accelerating by 37.9% year-on-year to $38.4 million in the third quarter. Even more remarkably, profit before tax soared by 141.8% compared to the previous year, leading to a striking net profit growth of 149.5% in the third quarter and 57% across the nine months of 2023.
iFAST Global Bank, the burgeoning banking operation, has witnessed promising progress, with net revenue from banking operations climbing by 49.4% year-on-year to $3.32 million, largely thanks to its newly launched Digital Transaction and Personal Banking divisions. Customer deposits and balances have surged by an impressive 140.4%, indicating strong client trust and potential for increased financial activity.
Overall, iFAST Group's total and net revenues have seen healthy increases of 23.8% and 38.7% year-on-year, respectively. Net profit experienced an extraordinary hike, skyrocketing by 308.4% year-on-year in the third quarter. Looking forward, the corporation is forecasting marked improvements, with profitability in 2023 expected to far outpace 2022, and robust growth anticipated for 2024.
iFAST is committed to its strategic three-year plan, emphasizing growth and profitability in its core businesses, expanding the Hong Kong market through ePension services, and further developing iFAST Global Bank. These initiatives are expected to significantly contribute to the group's medium to long-term growth, especially post-2025.
Reflecting the company's commitment to shareholder returns, iFAST has maintained a consistent third interim dividend of $0.013 per share, equaling the disbursement from the same quarter of the previous year, and pointing to stable financial stewardship.
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Hi, everyone. Welcome to iFAST Corporation results presentation for third Q 2023 and 9 months 2023. My name is Jean Paul from the Corporate Comms team. I'll be running through the key summary at Section 1 before inviting Mr. Lim Chung Chun, our CEO, to go through the subsequent sections. So starting with key summary. Our assets under administration, or AUA, grew 1.7% Q-on-Q and 12.6% year-on-year to an end of quarter record high of $19.12 billion as of 30th September 2023. Despite volatile market conditions, net inflows remained positive and increased 34% Q-on-Q to $751 million in third Q 2023. And for the 9 months of this year, net inflows stood at $1.62 billion. The group's nonbanking operations continued to show strong growth in third Q and 9 months 2023. Net revenue increased 37.9% year-on-year to $38.4 million in third Q 2023, while profit before tax increased 141.8% year-on-year to $13.27 million in third Q 2023. On a year-on-year basis, net profit grew 149.5% and 57% in third Q 2023 and 9 months 2023 respectively. The Hong Kong ePension division made an initial 1-month contribution during the quarter and helped to drive contributions from the overall Hong Kong business. Overall, the group's total revenue increased 23.8% year-on-year to $66.22 million in third Q 2023. Net revenue grew 38.7% year-on-year to $41.72 million in third Q 2023, an increase 18.1% year-on-year to $104.53 million in 9 months 2023. The group's net profit increased by 308.4% year-on-year to $8.52 million in third Q 2023, an increase by 194.2% year-on-year to $15.09 million in 9 months 2023. Even though iFAST Global Bank, our banking operation is still in the initial buildup stage, the Group is seeing encouraging progress. Net revenue from the banking operations grew 49.4% year-on-year to $3.32 million during the quarter, driven largely by the new divisions of Digital Transaction banking and Digital Personal Banking. Deposits and balances of customers grew 140.4% to $232 million as of 30th of September 2023, which is higher from the $96.5 million at the end of last year. Going forward, we expect overall revenue and profitability to show marked improvement. The group expects profitability in 2023 to be substantially better than in 2022 while the revenues and profitability in 2024 are expected to show robust growth compared to 2023. The expected improvements will come about as the Group makes good progress on our 3-year plan, which was announced earlier in the year. The Group's wealth management platforms are expected to continue to progress while the ePension division will contribute more substantially going forward. Profit contributions from iFAST Global Bank are expected to still be negative in the next 3 quarters. However, the group expects iFAST Global Bank to play a major role in the growth of the group in the medium to long term, particularly beyond 2025. For the third interim dividend for third Q 2023, the directors declared a dividend of $0.013 per ordinary share, which is similar to 3Q of last year. Moving on to our AUA chart as you can see the Group AUA increased by 1.7% Q-on-Q and 12.6% year-on-year. So it stands at a record high of $19.12 billion, with a rough stake of 70% from B2B and 30% from B2C. In terms of net inflows and gross unit trust subscriptions, on a quarterly basis, the 3Q numbers this year were the highest for both net inflows and gross UT subscriptions. And for 9 months of this year, net inflows stood at $1.6 billion and for gross UT subscriptions the 9 months 2023 numbers stood at $3.3 billion. Moving on to Section one, the financial results. So starting off with the nonbanking operation, the financial indicators for 3Q of 2023. So net revenue grew by 37.9% to $38.4 million in 3Q 2023. Operating expenses grew by 9.4% year-on-year to $24.95 million, and net profit grew by 149.5% year-on-year to $10.62 million in 3Q 2023. Similarly for nonbanking operations for the 9 months period of 2023, our total net revenue grew by 15.9% year-on-year to $95.45 million. Operating expenses grew by 5.2% to $69.7 million in 9 months 2023, and net profit grew by 57% year-on-year to $21.13 million. Next, the financial results for the whole Group for 3Q 2023 which I shared earlier, we saw total revenue growing by 23.8% year-on-year to $66.2 million in 3Q 2023. Net revenue grew by 38.7% year-on-year to $41.72 million. OpEx grew by 11% year-on-year to $30.6 million, and net profit grew by 308.4% year-on-year to $8.52 million. EPS stood at $2.88 in 3Q 2023, which is a 305% year-on-year growth. Financial results for the group in 9 months 2023 saw total revenue grew by 8.7% year-on-year to $174.3 million for 9 months. Total net revenue grew by 18.1% to $104.5 million. OpEx grew by 12.5% year-on-year to $85.5 million and net profit grew by 194.2% year-on-year to $15.09 million. EPS grew by 192% year-on-year to $5.12 for 9 months 2023. The next slide shows the overall results in the last 4 financial years and 9 months of this year. I won't go through the details and just wrapping up for Section 1 on the dividend. So the interim dividend at $0.013 of ordinary share payment date of 17 of November. So similarly compared to 3Q of last year, the dividend per share rate is the same at $0.013 per share. So I'll now invite Chung Chun, our CEO, to carry on with Section 2 and the subsequent parts.
Thanks, JP. Hi, everyone. For this section, I'd like to start off by recap of the 3-year plan that we have been talking about. I think it's good from time to time to take a step back and try to look at what we're actually trying to achieve. In a sense, more than 2 years ago, we have actually been talking about this direction. We use to talk about 5-year plan, the 4-year plan and then this year, we will talk about 3-year plan. So just to recap, as far as our 3 year plan as I said, firstly, I think in terms of our existing core business. Certainly, we continue to gain to grow bigger and get better and be more profitable. Second would be with regard to Hong Kong, which is to accelerate the growth of Hong Kong and effectively deliver on the ePension services. Thirdly, the iFAST Global Bank, which acquired early 2022, [indiscernible] 1.5 years ago. We want to develop that. We feel that it is important for the next phase of our growth to have a bank within the Group. So we acquired that and we have actually been booking on that, and we, of course, also aim to develop some adjacent capabilities such as a payment along the way probably to have a more truly global business model, which is something that which will allow us to be more -- to be able to grow more effectively in a more scalable manner. So I just have some brief points on digital [indiscernible]. So firstly, with regard to the, the core wealth management business that we have, I would say that broadly speaking, what we have said is that in recent times, Singapore and Malaysia have actually progressed better. Both Singapore and Malaysia have actually seen the AUA hitting [indiscernible]. The market conditions have been volatile or negative in case of some equity market, especially in the China [indiscernible]. But despite the volatility, Singapore and Malaysia have been able to continue to see positive net inflow and with that we've been able to hit a record high AUA.
Hong Kong in terms of the wealth management platform that we actually had Hong Kong had been negatively impacted by the [indiscernible] conditions more than the other countries. I'll say the reason for that is because China has been one of the worst performing equity market and Hong Kong in part of China has been a key part of that. I think that affect the overall environment in Hong Kong more than for places like Singapore and Malaysia. So that's what happened. But you put the 3 markets together or 4 markets together including China. China has been something to continue to be [indiscernible] business in China. But if you put the overall 4 markets together in terms of AUA, we have actually managed to just achieve a record high at the end of the third quarter. U.K. also started to contribute somewhat to the AUA even though that's still at the initial phase. Moving on, yes, with regard to the wealth management business as well as probably also pointing out that in recent quarters on a positive trend has been the volume that we're seeing on the fixed income on the bond business. I think in the rising interest rate environment that we have actually have been seeing, you probably find that the general perception of equity have taken a hit because investors become more cautious. The attitude towards bond funds generally to be more negative because you start to see the performance of the NAV of the different bond funds that they can hit. But for bonds, specifically, you find that the interest has actually picked up. The reason for that recently because investors now realized that you can get a much better return from various bonds including government, treasuries, Singapore Treasury, U.S. treasury and investment-grade bonds as well, now you get actually much higher return. So, it's increased to the level [indiscernible] level of interest and awareness from individual investors especially increased quite a bit, and we have actually benefited from that. Moving on [indiscernible] bank, I think for iFAST Global Bank, there are essentially 3 divisions. We have the EzRemit division. We have the digital banking division and digital personal banking division. EzRemit business is a business that actually have been there all these years in the bank. So when we acquired that business continue. I will say that year-on-year, the volumes probably somewhat flat in terms of EzRemit. But the new divisions that we launch after taking over the bank these are digital transaction banking and the digital personal banking. These 2 divisions are new, but in the last 1 to 2 quarters sits on encouraging progress from this. So because of these 2 divisions, we actually find that the overall revenue of the bank has actually grown by [ 40% ] year-on-year in 3Q and net interest income for the bank has also grown. The amount of customer deposits as a bank also grew by over 100% from end of last year to end of the 3Q. So of course, it's still early days, but we are quite hopeful that it will be very encouraging trends for [indiscernible] bank as a whole, especially from digital transaction banking as well as digital personal banking going forward. Finally, with regard to Hong Kong. I mean if you mentioned business is something that we have actually been talking about quite a bit. If you recall the last 2 years, essentially the [indiscernible] partner for the ePension business have been building the platform. I think in recent times, you might have seen in the news that MBF authority has actually mentioned that the system that [indiscernible] is already substantially completed. And in fact, in the last 4 months or so, there have been very intensive testing for the system and [indiscernible] have been extensively involved in this [indiscernible]. So we basically -- we have come to a phase where the business is about to contribute in a much bigger way. Third quarter again saw some initial contribution. There's a minor contribution from that. So going forward, then we expect that ePension business become a far more substantial part of the overall group business. I think several quarters ago, there were probably some concerns about whether the system -- if the [indiscernible] come up well and whether there's a big potential, et cetera. I suppose as of now, yes, we'll wait for authority to make -- to be the final judge of [indiscernible]. But from our perspective, I think that's yes, maybe 90% chance that thing will be [indiscernible]. Yes, so this is just slide that talk about guidance on the [indiscernible] Hong Kong as a whole that was produced in April 2022. Yes. Going forward into next year, we may have some fine tuning, it's on the guidance, but I would say that our commitment to the PBT target has been stated that has not changed. This slide here is just something we have shown before, and we're just putting up here again just to remind investors about the iFAST Fintech Ecosystem. So currently, we have over 825,000 customer account. We have -- for the B2B side of the business, we have over 640 companies. They're using our platform, which in turn have over 12,500 advisers using our platform across 5 markets. So it was just continue to progress. And yes, that would be the end of this section, too. I don't think I'll be running through the other statistics. I think the numbers are there. They are self-explanatory. At this point in time, yes, we'd be happy to move on to the question-and-answer section. Ready to take any questions that you may have.
[Operator Instructions] Okay. We have a first question from Kelvin. Congrats on the great quarter. Okay, iFAST secure regulatory approval to market. iFAST Global Bank to existing FSM users, which will be good if iFAST can cross-sell ITD to 825,000 FSM customers.
Yes. So iFAST Global Bank, I think the expectation is that among our customers, there will be groups of customers will clearly be very keen on iFAST Global Bank services. I think among the Singaporeans probably not so. Singapore is by and large quite [indiscernible] the banking services in Singapore, but I think investors, consumers in other countries, I think there's a very strong demand for the ability to have a bank [indiscernible] outside the country. And that accordingly has shown up in some of the recent trends and demand and the companies that we actually see. That is something that is encouraging first up. Having said that, I would say that actually, the [indiscernible] company that we are seeing today for iFAST Global Bank are not coming from existing customers that we have. They are not coming from the existing [indiscernible] that we have. In a sense that I see that as being something that's positive because that is actually -- that actually means that the overall customers that we actually have is expanding in terms of the base. And that indeed has been the thinking that we had when we decided to acquire iFAST Global Bank because the thinking really is that the bank will allow us as a group to be able to grow our business better including helping investors from various country who are not currently our investors to open bank account and they would then allow us or to allow them to actually use our platform services. So that is the intention. And I think we're seeing that indication that the contract [indiscernible] and so that is something that we hope we can -- to potentially be something that will be a major driver for growth over the next few years. Okay. Perhaps to clarify the 825,000 customers are across our B2B and B2C divisions. And not just limited to FSM.
Okay. So we have a follow-up question from Kelvin on the U.K. Bank. Why is that the quarter U.K. loss almost unchanged despite the big quarter-on-quarter increase in deposits. Was it because of high customer acquisition costs.
Yes, the revenue went up, but the profitability has not improved. But I suppose if you look at it in terms of the absolute number, you're talking about a loss of about $2 million or slightly over $2 million, which I think by any standard or any digital bank that we're aware of that's been launched around the world. It's actually a very small number. So in a sense, it's some of these costs are actually necessary. In fact, as we feel that the overall cost that we're incurring and trying to build a digital bank is actually in fact a very small number by any standard. We are happy to say that we're able to keep it efficient because -- only because of our in-house IT capability, et cetera, that will allow us to deliver the technology solution at a fractional costs than most of the digital banks seem to be doing are incorrect. So yes, so actually, there's some increase in cost, but I think important is that we see a positive trend in terms of revenue and deposits. And in the short term, I think we made a comment [indiscernible] in the short term. The next 3 quarters, we still expect to be loss making, but certainly, going beyond that, we do have a high [indiscernible] iFAST Global Bank.
Okay. A question on bonds from Paul. The bonds and bond-related products contribute significantly to the growth in AUA.
I think bonds have grown well. The bond category on its own [indiscernible] showed quite a significant percentage growth. So that certainly have been a significant factor in helping the overall growth of the AUA. But having said that, we're also seeing that unit trust, as a whole is also growing. And ETF AUA as a whole is also growing, but I think bonds in recent quarters have seen more rapid growth.
Okay. We have a few questions on our ePension division. Okay. The first question from Benjamin. Could you share what is the rough net revenue and PBT contribution from ePension in the third quarter this year? Do you see upside risk to the overall Hong Kong business guidance?
Yes. So we're not able to give too much breakdown in terms of the actual contribution from ePension on a quarterly number basis. I think there's some confidentiality requirement on our side, which is why we report the numbers for Hong Kong as a whole. But yes, but if you take Hong Kong [indiscernible] then ePension has been a very significant driver to the growth or probably a major driver to the growth during the quarter. Do we see an upside risk for the overall Hong Kong business guidance? I think, yes, we're still in the midst of preparing for the whole business going into '24 and '25. So I don't want to make too much comment about '24, '25 at this point. But I think for 2023, I think we're quite comfortable. The guidance that we've given for 2023 and probably for this [indiscernible] risk in 2023.
Okay. Another question on our ePension division from [indiscernible]. Just wanted to clarify also [indiscernible] any update on partnerships...
At this point, we have [indiscernible] main pattern. Also, we expect to contribute by 1Q 2025 as was previously mentioned that in itself is going to be a significant contributor. There are other discussions, et cetera, they are ongoing in the meantime, yes, we do have [indiscernible]
Okay. Question from Ryan. What's the level of operating expense growth should we expect across the group in FY 2024 as the Hong Kong ePension product scales.
I think there will be a substantial increase in operating expense for Hong Kong as a whole and for the group as a whole because of the scaling up of the ePension business. right? Because we have seen the process of ramping up [indiscernible] that's required for the ePension business. Having said that, I will expect that increase in expense will [indiscernible] behind the increase in revenue or increase in net revenue, right, for the group. So that should lead to better operating margin for us going into 2024.
Okay. We have a question from [indiscernible]. Questions on the sustainability of margins. Can we expect net margins to be in the low to mid-teens going forward. Our cost for the ePension division was [indiscernible]. What is the net margin for the ePension division, similar to existing business?
I think -- if I take the current situation I would say that 2023 as a whole, as a Group as a whole. In my mind, we're still not seeing the optimum margins yet because yes, there has been volatile market condition, and we're still at the initial stages of seeing the contribution of ePension. So we are in a situation where 2023 is not an optimum situation yet. But as we progress on the ePension business, then we expect that there should be improvements that the group will see to some margin as a whole. Why is a sustainable level, I would say that we are quite updated that operating margins that we are seeing today can be improved, and that is a sustainable level at least for the next few years. And yes, the exact level is probably not something that I can pin down because it really depends on the overall scale that we have on the wealth management platform [indiscernible]. But yes, I think in terms of the next 1, 2 years, we can expect that there will be improvements in operating margin.
Okay. We have a question from Paul, [indiscernible] it was not particularly robust in the third quarter, what helped increase investor appetite for bonds and ETFs and [indiscernible].
Yes. So you might take the funds business, historically, yes we have tended to find that the bulk of the [indiscernible] for funds actually come from. It could be related products, whether it's equity or balance fund, particularly equity. I think in recent times, we are also seeing that contributions are coming in other asset classes so in terms of the funds, but in different sectors. I think the most obvious one would actually be for the auto-sweep that we actually have. JP, do you want to just give a bit of flavor on this Auto-sweep.
Yes. Just to add on to Chung Chun's point. Yes. So indeed, our investors have been investing more into some of the money market short-duration funds. So for the Auto-Sweep that was launched by us on FSMOne in Singapore in July. It's essentially into a fund that we call iFAST enhanced liquidity USD. And the response from investors has been positive. We have also launched it on our iGM Singapore platforms since. And I think the attractive features from an investor perspective is the net yield. It's been in the region of about 4.7%. And also there's [indiscernible] 0 settlement and redemption cycle, which also means that investors can receive the U.S. dollar very swiftly within the same day, subject to some time -- cut-off times. By essentially the convenience of having a net yield on idle money and also the convenience of getting the money quickly if the investors need to use it for investing, let's say, on the U.S. stock markets. So I think we have seen good flows in responses in Auto-Sweep.
So if you look at this Auto-Sweep service essentially underlying that is a money market fund. Basically, the money market fund of other fund houses as well as one fund that we created for several U.S. dollars. So the way the service is created, we essentially are able to deliver a pretty high -- and have liquidity that is like savings account, right? Because it's basically T+0, T+1. And for U.S. dollar, you're looking at 4.7% currently. So I don't think investors will be able to get at 4.7% from any bank in a savings account unless you are a private bank [indiscernible], are talking about the normal [indiscernible] right, currently is about 3.2% signaled Auto-Sweep. So that itself is also attracting a good amount of inflow. So these examples of funds that are not directly correlated to equity market and they actually are seeing a good improvements in [indiscernible] from the client, especially as interest rates become higher.
Okay. we have 2 questions from [indiscernible]. The first question, has iFAST considered the dual listing on another stock markets, eg., Hong Kong because of ePension business. So could you say a little more about the plans for this. And the second question, given that net profit is expected to increase next year, is there a guide or forecast for how much the company's dividend payout.
On the first question, I'll take the easier question that I've asked myself from time to time. And internally, we [indiscernible] take through some of these questions from time to time, whether to go [indiscernible]. I think there are some positive considerations for some of that because if you look at some of the business that we have, if we have a local listing in the market, then that could be beneficial for our business in the country. So that [indiscernible] is consideration. But at the same time, in my mind, there are a number of negative as well for us to watch out for. And I think the key negative in my mind really is that we end up having to have more, have to worry a lot more about our peers issues that are not directly related to the business of running the day-to-day operation. And is whether the additional negative can [indiscernible] the positive. But by and large, I would say that the ability for the stock to perform well and to generate good liquidity in a certain market, I would say the primary factor is probably not so much which market we are in. I think the primary factor should be about whether the company is able to communicate well to the investors, whether the company essentially is able to articulate it's vision properly, such that our investors generally can understand. That review is a primary factor. I think the liquidity of some of the bigger markets can be very good at certain times, but it can also suddenly turn to quite a negative situation. So overall, at this point in time, I would say that we are not in a hurry to be looking at separate listing. We are focused for now on ensuring that our overall business and profitability continue to improve, continue to grow. We focus on also ensuring that within Singapore, we are able to communicate well to investors, broaden the base on investors who understand our business. And hopefully, as we go further, then we become a bigger fish in a not so big pond, that probably might be more beneficial for us in the -- in the medium term [indiscernible]. That's the first part of question. Second part of the question, the forecast as to the dividend payoff. Okay. I think yes, if you recall, a few years back, I think the company has intended to pay off about 50%, 60% of the profit as dividend. But again in the last 2 years because of the fact that profitability took a hit, but we actually maintained the dividend per share number. So because of that, you find that the overall dividend didn't grow and the payout ratio was actually quite high. So now going into next year, as we expect profits to grow substantially then there's certainly room for increases in dividend. I would say that in the past, we essentially have a business where -- we essentially generate fee income. We would need a big partnership, where we didn't have a bank, we don't have good financial so that's why paying 50%, 60% seems to be something that we can do quite comfortably. Now going forward, the next couple of years. I think the new consideration is that now we own the bank. So banks generally requires more capital and we want to ensure that we're one of the strongest bank around. And I think we are quite serious when we say that. So we want to continue to strengthen the overall balance sheet of the bank and our group. So that's a part of the thinking, but having said that if you look at our business overall as a group, even today inclusion of the bank, you can find that the bulk of our revenue and profitability still comes from fee income. So for the group as a whole, we will still have a business model that allows us to generate pretty high ROE return on equity as a group on a combined basis, especially if you into 2024, 2025 and beyond. So the implication for that really is that, yes, we can continue to increase the size of our balance sheet for the bank as well as the group. At the same time, we should be able to make good and increasing levels of dividend. Yes. It's a long answer. I just wanted to talk you to just [indiscernible] thinking that we have without giving down a specific percentage. But I think fair to say that -- yes, the percentage of something along the line of 1/3 to 1/2 of the net profit, it should be something that we will consider as we move into the 2024, 2025 and beyond.
We have a question from [indiscernible] what's the time line on the migration of ePension accounts to commence in the second quarter of 2024 [indiscernible]. Is it reasonable to expect ePension contributions from now until then will stay probably stable for 1-month contribution in 3Q '23.
So 3Q of course [indiscernible] moving forward, we've seen [indiscernible] 3 month contribution. And then, of course, on the [indiscernible] bigger contribution. Yes. In terms of the actual level of contribution that we actually see at the start then, we see a certain level. But as we move on, the other factors that will affect the actual level of revenue that we have, that includes the actual onboarding rate, the amount of the AUM that's been onboarded to the platform. The more [indiscernible] the more work that we have to do. So the higher net revenue will be. And then if you take on a longer-term basis, in a subsequent couple of years has also some inflation factors to consider make some difference. Yes. So yes, if you think in terms of the contribution going forward then, yes, so from 1 month, it become 3 months, and then after that, there's some upside revenue because of a higher operating risk, et cetera.
Okay. We have a follow-up question from Paul. What is the current bottleneck for a global customer in opening and accounts with the IMO-spec are there restrictions for certain countries.
I think, yes, opening of the bank account -- to create the bottleneck I would say really would be KYC considerations. Considerations on ensuring that sufficient AML screening KYC procedures, et cetera, have been taken before we open account or [indiscernible] account. I think for the financial sector as a whole, that has generally been a factor in terms of whether you can open accounts well and efficiently. I think that would probably be the key considerations for us to handle because we need to make sure that we are extremely robust in our procedure. AML steps cannot be compromised. At the same time, how do we make it sufficiently smooth and sufficiently painless for the customer. I think this generally would be the consideration for account opening. So if you look at it from that perspective, that I think quite clearly, there will be some customers from some countries that can't open account, [indiscernible] because there's a certain internationally accepted standard in terms of the risk level of people from the various countries, countries [indiscernible], higher rates of bonds, et cetera and for those that we can open. For others, we can open by additional due diligence need to be done, so that make it more [indiscernible], et cetera. After opening, there's ongoing monitoring on the account. So these are all considerations. I think for most banks, you actually find that because of this KYC consideration, AML consideration, most banks actually choose not to allow customers from other countries to open unless they are high net worth individual. That is the path that many bank have taken, probably majority of the banks, and they typically will allow customers from maybe their own customers can make their own country to open. But that [indiscernible] service what we feel is creating the opportunity that they see. I think because most banks prefer to rely on company procedures that have been -- placed for this decades, right? So that's why [indiscernible] as the world has evolved, even as the world business model have been changed by the Internet. Many banks have been progressed in terms of increasing the new opportunity in the world. A lot of banks in fact choose to focus on high net worth individuals. You need to have several million dollars, people who can open account are not a domestic resident. In my mind, that in itself should introduce greater risk -- because I think [indiscernible] on average, I'd say is higher for high net worth individual. If you are bringing in $5 million, $10 million, there's always a bigger question of where the $5 million, $10 million coming in. So banks that who may open account for high net worth individual that who actually be facing this question a lot more and having to wait whether [indiscernible] open account. In our case, because we [indiscernible] section of customer, then we can have a great clear cut decision right here [indiscernible] that is essentially thinking. And without taking the AML risk or minimizing the AML risk will still allow us to have a very good and robust business model. So that is probably the thinking that we have. So with that consideration then, of course, it means that we will be looking at many different individual customers open account with us. So the volume, the number of people that we have had to handle would be quite high and quite substantial. So that in itself then create another bottleneck because how many people can we handle each time. How many people do we need in a customer service center in the backlog compliance team, et cetera, to be able to ensure that we can develop services effectively properly. So that is the other part of bottleneck. That's something we have to -- it's an ongoing process for us to ensure that we can deliver that well. But for us, as a group, we feel that is not a new challenge for us because the business that we have for these years as an investment [indiscernible] we have actually been opening account for investors of all sizes. There's no minimum size you need to have before they open an investment account with us to put money in Unit Trust, it can be $100 for the account. So we are quite used to managing this segment of the bottleneck. Banking additional procedures typically that's needed, but it's not a new category of challenge. So probably, we expect that we are able to do that well. And of course, as we move on, I think we are also looking at deploying AI to cap out to manage this potential bottleneck factor, just [indiscernible] number of customers in terms of having the backroom requirement that we achieve [indiscernible]
Well, we have a question, [indiscernible] offering U.K. stocks soon.
Yes. We got to take this question as well as perhaps the next one. So to [indiscernible] question, yes, FSM on Singapore will be offering LSE trading in stocks and EFT pretty soon. So we'll keep look out on our website [indiscernible]. And also the next question from Kelvin. The Auto-Sweep when calculating it as [indiscernible] will go under the Unit Trust part essentially and the cash account will go under the cash part of AUA.
[indiscernible] China. China operations seem to be in a state of decline in the last few quarters. Are there any task offs to look into [indiscernible]? And with [indiscernible], launching a B2C segment in China?
China, yes, certainly, if you look at our China onshore business, it has done quite poorly, last couple of quarters. I think the state of the market certainly has hit certain market pretty hard. China is, of course, even Hong Kong has been negatively affected. So our expectation at this point in time is that in the medium term, I think the market will remain challenging. So cost control -- reduction of cost is something that especially been looking at it -- it's something that we continue to work on. Offshore, we do see some increasing demand, and that's something that we'll have to overall [indiscernible], then there's some that's a situation that we have to handle at this point. We will be launching a B2C segment in China. We are -- we have no immediate plan to launch a B2C online business for China.
I have another question from [indiscernible] mentioned, product skills and [indiscernible] begins to generate more cash, should we expect an increase in M&A activity. If so what types of businesses would you be interested in acquiring.
Yes, M&A is something that we will consider from time to time. But I think we are generally quite clear that when we look at this year, we see something strategic to what we do as a group that is something that we stick to. Even though as a group, we have been evolving all these years, [indiscernible] back in the year 2000, just 1 Unit Trust distributor in Singapore. But today, of course, we are in 5 markets, having multiple products [indiscernible] mentioned of the business, et cetera. So we have been evolving, but we see all this, it won't be over that we have been taking on as something that's still strategic as a whole. So we are actually an investment platform. We just evolved as we need to back into the opportunity that we see or even for ensuring that we remain relevant as a company and ensuring that our revenue stream will remain robust because the nature of our revenue still keep evolving as we move on. Yes. So M&A opportunity that's strategic is [indiscernible]. So over the years, we have done some M&A, but not too many because, yes, we find that the business that we're in the number of direct competitors that tend not to be too many. So not too many B2B or B2C platform to acquire along the way. So yes, M&A is something that we will always consider, but there are not too many. As we move forward, I think that will be the kind of mindset that we have will continue to evaluate the possibility and so on. And as to what type of business, I think to me, the [indiscernible] what we are already doing.
And then there's some sort of both companies to be acquired and then they can actively move our overall revenue and profitability that I think will be ideal. But I would say that there are other parts of the consideration as well, which are seen strategic. I think why I talk about perhaps the [indiscernible] data space. I think as we get into banking. We know that [indiscernible] banking, then we also need to ensure that the services that we provide for the customers will allow them to use our banking services well. And that being the consideration that we should look at some of these adjacent services such as payment that's where our debit card, et cetera, [indiscernible] services come in. Yes. And of course, if you think from that angle, then perhaps it's also good for thinking about whether [indiscernible] opportunity is actually available in the states that will allow us to move forward in a more rapid manner. And yes, hopefully, as we move forward into next year and beyond as some of the overall profitability and balance sheet become even stronger. And [indiscernible] with the fact that you can't just continue to run unsustainable business model for the start-ups. And hopefully, our opportunities will pop up along some of those lines. So yes, it's something [indiscernible]
When can we expect direct wings to U.S. markets to be launched?
We -- yes, the current -- the current target that we are shooting for would be later part of 2024, that's what we're looking on as well. Yes, yes. So it's something that we definitely want to put on. But along the way, I think some of the application process and getting southern [indiscernible] has taken longer than what we originally expected, but we're still working at it. I suppose importantly, I think in the meantime it doesn't stop us from doing what we need to do in terms of growing the U.S. stock and ETF trading for the business. So that's something that [indiscernible] progress in terms of the pricing, et cetera, continue to [indiscernible]
Okay. We have 3 questions from [indiscernible]. This question for bank deposits, you mentioned paying investors over 4%. What do you do with the deposits? Are they reinvested in investment and securities. And if so, what kind of instruments and what kind of [indiscernible]. When might you start spending? And what strategy and segments that you have?
Yes. So firstly, I think if you look at the balance sheet, the latest balance sheet that we have published you actually see some big increases in certain categories. One category is actually cash, right? I think in that category, in terms of increase, it will be investment securities essentially bonds. So in terms of what we do, we have the deposit at this point 2 main area, one, actually cash and 2 investment. So when I say cash. What actually happened is that a large part of this cash in fact, cash that resides with [indiscernible] U.K. Central Bank. So we will look at our DPV business, you can add your finance. If you put money in our account, overnight money, right, the savings essentially where it can pick up overnight. We are getting 4.25%. So we take 4.25% and then today, bank [indiscernible]. So we take -- take deposit 4.25%, we placed it with Bank of England and [indiscernible] From our perspective, that is certainly a good thing to be doing because we're taking the risk of Bank of England. If I can be risk free and then we're making 1% margin on this particular part of it. So that in our opinion it's actually a very good model to be doing and in a sense that there's an advantage [indiscernible] you have access to the central bank, right? You can just aggregate the money from retail investors or depositors and then you give your Bank of England, you don't take any balance sheet risk and you get 1% margin. What we need to do essentially is to be willing to do the operational and administrative work of aggregating the small amount of money from different depositors. Many banks prefer not to do that, but we see that as a good business model to have that is essentially a safer business model than the business model of any banks, especially for the digital bank [indiscernible] model than what many other banks are actually doing. So other than the cash with Bank of England and [indiscernible] investment in investment group bond. Yes. So we place it in a combination of sovereign bond as well as corporate bond by the investment group bond. And we keep the duration low. I think our portfolio at this point in time, averaged 0.9 years. So that's one year in terms of duration. And we probably made about 1.5% spread on that. So that's what we've done with the [indiscernible] deposits that we have collected. Well, we'll be lending. Yes, we expect to be lending, but we intend to be conservative, and we intend to do it surely. One area that we expect to be going into would be housing loans or investment platform business [indiscernible] unit trust. Lending [indiscernible] unit trust are -- even though we are an investment platform, all this while, we haven't done much of that, we're just in the initial stage of doing that. So generally, as a group, we prefer a business model where we don't take too much risk and many banks when they think of the business model of a bank, they think in terms of lending and then think of lending to smaller corporates, et cetera. We actually don't like that because we feel that that's pretty risky. As a group, we like to collect customer assets. We don't like to lend up that's been the way we run the business all this while, but of course, as a bank, we expect that we will be doing some lending, but you can expect that we'll take quite a conservative stance on lending.
Okay. The second question, are you still targeting profit breakeven for banking in FY 2024 if so can you clarify what are [indiscernible]
We are still [indiscernible] for second half of 2024. What are the [indiscernible] required to drive that? I would say the key revenue growth that we are expecting for the bank -- for iFAST Global Bank, will be a net interest margin -- income and that is a function of the amount of deposits that we have. And as I explained earlier, after taking the deposits from customers, both DPB and -- both digital transaction banking as well as digital personal banking segment of the business. After taking that, we put that in investment grade bonds as well as some of that in the Bank of England, et cetera. So as amount deposits and asset base grew, and our net interest income will grow accordingly. That essentially is what -- is how most banks make the money, right? I think including Singapore bank I think they have a message on all deposits and you can expect consistently they're making profit. So we want some of that benefit for ourself as well. So that is the thinking and planning of the business.
Okay. We'll answer 1 bank related question first from Aakash. On the deposit spread business. Is there any FX risk? And how are you hedging it?
So generally, we try to have a bit of a natural hedge. So if a deposit is in sterling, then we will place it in a sterling asset. So as of now, the majority of the deposits are in sterling. And if we place with Bank of England, we are buying GBP bond, then there's a natural hedge. And then the second biggest category will be the U.S. dollar deposit and U.S. dollar deposit that we buy USD investment group bond or some of it even in USD money model funds, right? And yes, so we don't take too much FX risk from that perspective.
Okay. Going back to the question from [indiscernible]. What kind of fee models will also contract [indiscernible]? I think also it's like 1/3 to what [indiscernible] if not strong, do you see also contributing earnings that is seen proportion relative to NPA earnings in the future, if you can [indiscernible] customers.
Yes. I think [indiscernible] also is a big opportunity for [indiscernible]. I think the size of the market is over HKD 300 billion, in terms of AUM. Of course, that is the market, but it is a sort of a fragmented market. I think in our case, some of the agreement that was struck [indiscernible] our initial partner that we are going to start off early 2025 was really a good level of scale that will allow us to be profitable straightaway. So that's a good opportunity. And then we are looking at building upon [indiscernible] and then growing it from there. So the opportunity is substantial. Of course, it's not possible to cover all [indiscernible] customers because it is a fragmented market. I think we just need to -- yes, but if we can go for that 10%, 20% of the market over a year then that itself is actually big opportunity. Also, the revenue stream for us is actually a proportion. Is [indiscernible] business, where we earn our revenue as a percentage of the AUM, right? So also then that AUA that [indiscernible] will be added to our group AUA number and then the revenue that we have will be a percentage of the AUA. For the [indiscernible] part of it, it's just a service fee. We don't include that AUA number into our [indiscernible] numbers.
Okay. So that's all the questions that we have for today. So we'll end today's session. So thank you, everyone, for attending, and we'll see you next quarter. Thank you.
Thank you.