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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Hello, everyone. Good morning. Thank you for attending iFAST Corp 4Q and Full Year 2021 Results Presentation. Today, we have with us our CEO, Mr. Lim Chung Chun; as well as our Director of Corporate Communications, Mr. Jean Paul Wong, to present more on our financial results.
So without further do, let me pass the time over to Mr. Jean Paul Wong.
Thank you, Chee Wei, and good morning to everybody who has joined us for our results briefing. So I'll run through key summary and Section 1 touching on the financial results before Mr. Lim Chung Chun will carry on with Sections 2 and 3, and we will then conclude with the usual Q&A session.
So moving on to key summary. The group's AUA, assets under administration, continued to register new record levels, reaching SGD 19 billion as at 31st December 2021, so this is a growth of 31.5% year-on-year. Within this AUA, the key investments across from unit trusts, that grew to a record SGD 13.89 billion as at 31st December 2021, so that's a growth rate of 27.5% year-on-year.
As a result of the increasing AUA, our recurring net revenue has continued to grow at a robust pace, increasing 35.6% year-on-year for full year 2021.
The net inflows of client assets remained healthy in fourth Q 2021. It stood at SGD 0.76 billion, leading to net inflows of SGD 3.75 billion for the full year 2021.
The group's net revenue grew 31.9% year-on-year to SGD 113.22 million in full year 2021, while our net profit grew 44.8% year-on-year to SGD 30.63 million in full year 2021. Reflecting the positive operating leverage of our business model, our profit before tax margin, which is based on net revenue, increased to 31.6% for full year 2021, higher than the 29.6% in full year 2020.
Moving forward, the group will focus on executing our 4-year plan, which includes getting bigger and better, accelerating the Hong Kong business growth, adding digital banking and other capabilities to the iFAST Fintech Ecosystem and building a truly global business model.
On 7 January of this year, we announced our intention to acquire U.K.-based BFC Bank Limited from BFC Group Holdings. iFAST Corp expects the proposed acquisition to contribute to some initial start-up losses. Based on our 85% stake in the U.K. Bank, the estimated loss to the group for this year, full year 2022 is approximately SGD 4 million, excluding some transaction and other charges charged to the balance sheet upon completion. iFAST Corp targets to achieve profitability for the U.K. Bank starting from 2024.
iFAST Corp expects the overall business to achieve robust growth in both revenue and profitability between 2021 and 2025, with our Hong Kong ePension division expected to be the biggest driver from 2023.
The guidance for the Hong Kong business, on the Page 26 of our presentation, that conservatively provides for a 6-month delay in the rollout of the ePension project, even though the delay may not likely occur. The group will revisit the guidance in the later part of the year.
For the final dividend for full year 2021, the directors proposed a dividend of SGD 0.014 per ordinary share, an increase of 40% year-on-year compared to the final dividend for full year 2020, which was at SGD 0.01 per ordinary share. The proposed final dividend will be subject to approval by shareholders at our AGM to be held on 25th of April 2022.
Moving on to our AUA chart. So as shares, our group AUA grew 31.5% year-on-year to SGD 19 billion as of 31st December 2021, so roughly 70% is contributed by our B2B business division and the remaining 30-plus percent is from the B2C business division.
Looking at our net inflows. We achieved a record net inflows number for full year 2021 at SGD 3.75 billion. And moving into the gross UT subscriptions for our unit trust, so that also achieved -- or hit a record number of SGD 7 billion, slightly above SGD 7 billion for full year 2021.
Moving on to Section 1, which is our financial results. So firstly, looking at our fourth quarter 2021 numbers, gross revenue was up 13.9% year-on-year to SGD 54.55 million in 4Q 2021. Net revenue was up 16% year-on-year to SGD 28.23 million. Our operating expenses was up 11.6% year-on-year to SGD 19.5 million.
Looking at our net profit, so it rose 5.5% year-on-year to SGD 7.2 million in 4Q 2021. Our earnings per share was at SGD 0.026 for 4Q 2021, that's a 3.6% year-on-year growth. And our dividend per share, as mentioned just now, is at SGD 0.014 for 4Q 2021, which is 40% higher, but that is subject to approval by shareholders at our upcoming AGM.
Moving to full year 2021 numbers, excuse me. So gross revenue was up 27.2% year-on-year to SGD 216.2 million. Net revenue was up 31.9% to SGD 113.22 million for full year 2021. OpEx was up 19% to SGD 77.68 million, and our net profit was up 44.8% year-on-year to SGD 30.63 million. EPS for full year 2021 stood at SGD 0.111, which is an increase of 42% year-on-year, and dividend per share will be at SGD 0.048 for the full year, which is up 45.5% year-on-year. Again, the final dividend for the 2021 will be subject to approval at the upcoming AGM. So this slide shows the trend in terms of our financial results over the last 5 financial years, and it shows a positive trend where gross revenue and net revenue have been growing over the years. And net profit as well has been growing over the last few years, especially last 2 years at 2021.
Moving on to the PBT margin for our group, which is based on net revenue. So in 2021, we saw an improvement compared to 2020. So we ended -- we saw a PBT margin for 2021 at 31.6%.
For ROE, there's an improvement in 2021 where ROE stood at 25.8%.
For the different financial indicators over the last 5 years, so EBITA was at SGD 45 million for full year 2021. We have a net cash position of SGD 59.29 million for full year 2021. The operating cash flows improved to SGD 46.53 million. Capital expenditure rose to SGD 21.62 million for full year 2021. Net current assets stood at SGD 68 million and shareholders' equity increased to SGD 128.65 million for last year.
So going a bit deeper into the cash and other investments. So it consists of cash and cash equivalents, which stood at SGD 44.1 million, and other investments, which stood at SGD 15.19 million as of 31st December. There are no bank loans, so it's a gross debt-to-equity ratio of 0%.
Looking at our operating cash flows, there was an improving trend, and that increased to SGD 46.53 million in 2021.
For CapEx, there was an increase to SGD 21.62 million for the full year of 2021.
Number of issued shares. So as of 14th February 2022, it stood at 290.98 million shares, so that includes the 14 million new shares that came about from the share placement we did in January this year.
Looking at our balance sheet position, so total noncurrent assets stood at SGD 70.2 million. Total current assets stood at SGD 154.64 million, so the total assets amounted to SGD 224.85 million as at 31st December.
So shareholders' equity, as mentioned just now, stood at SGD 128.65 million, consisting of the share capital at SGD 67.5 million and reserves at SGD 61 million.
And the total non-current liabilities and current liabilities amounted to a total of SGD 97.2 million for total liabilities. And when we include total equity and liabilities, it was at SGD 224.85 million as at 31st December.
So the final slide for the financial results segment. So the proposed final dividend, just a little bit more details here. So for the final dividend of full year 2021, as mentioned, the directors proposed a dividend of SGD 0.014 per ordinary share, which is 40% higher compared to the final dividend for full year 2020, which was at SGD 0.001 per ordinary share. So this will be subject to approval by shareholders at our AGM to be held on 25th of April this year. So the proposed final dividend will bring the total dividend to SGD 0.048 for full year 2021, which is 45.5% higher than the total dividend of SGD 0.033 per ordinary share for full year 2020. Payment date will be on 19th of May 2022.
So I will now invite Chung Chun to present on Section 2 and 3. Chung Chun?
Hey, everyone. I'd like to talk about iFAST's 4-year plan as well as the proposed bank acquisition that we announced recently.
At the end of last year, or rather, at the end of October last year, we just talked of our 5-year plan. Right now, given that we are in the new planning year, I thought that we update it to a 4-year plan instead of 5-year plan. Essentially, we're focusing more specifically between now and the year 2025 So yes, we basically summarize in a few key points this 4-year plan. So the first is really to get bigger and better. That's for our existing business that some of you are familiar with. We basically have been growing. We continue to invest on our platform to ensure that we improve our overall services and product range, and at the same time, continue to strive for bigger scale. We previously talked a target of SGD 100 billion by 2028.
The second part really is about Hong Kong. So the next 4 years, we expect that we'll be looking to substantially accelerate the growth of our business in Hong Kong as we effectively execute our ePension business and as we continue to improve on our overall existing platform.
The third point is about digital banking and other capability. Adding digital banking to the group's Fintech Ecosystem and making strategic investment in adjacent fintech capabilities are important to us. All this, while ensuring the wealth management will remain a core service for us. Basically in mind, over the next few years, we also want to make tangible progress towards our vision of being a top fintech player, a wealth management fintech player with a truly global business model that will certainly make it a little more scalable for our overall business.
Let me elaborate on each of the points a bit more. So the first point on getting bigger and better, we basically have continued to make progress on this front in the various markets that we're in: B2B; B2C; and iGM. In recent months, we started to release a few -- a bit more information about iGM, which is our in-house wealth advisory division. That has actually made really good progress, particularly in Singapore and Malaysia and so on. The group remains committed to our previously-stated goal of SGD 100 billion by 2028. We have first mentioned about this in 2018, so at the time, we were talking about a 10-year time frame. As of now, we continue to basically be committed to achieving this goal by 2028. If you take our current AUA of SGD 19 billion last year, to get to SGD 100 billion by 2028, then we are looking at CAGR, compound annual growth rate of 27% per year.
We'll continue to work on enlarging our overall fintech ecosystem because in the Internet space, in the fintech space, having the right ecosystem, having the right similar kind of movement across a different part of ecosystem is actually important. That's certainly something that will continue to be an ongoing work in progress.
Our focus will continue to be ensuring our business model is scalable, capital efficient and derive the majority of our revenue from recurring income. That is the core thinking. Next point is about Hong Kong. We expect to substantially accelerate the growth of our overall Hong Kong business in the next 4 years, particularly starting 2023, 2024 and then moving on to 2025.
We expect our existing wealth management platform business will continue to grow, but the new ePension division will start to contribute substantially. Starting 2023 is our current expectation.
The ePension pension division will involve the operation and admin services for MPF scheme as well as ORSO scheme, right? MPF will, of course, be the much bigger part to the [indiscernible]. A substantial part of our group resources will be invested into ensuring that we can effectively execute this part of the service with minimal error.
The ePension division will not group -- add to -- will not add to our group AUA number, but it will add a strong stream of recurring service fee to the group.
3 months ago -- close to 3 months ago, we released our third quarter results. We gave the following guidance as shown in this part of the slide. We didn't mention much about 2023, but we mentioned about 2024 and 2025. We'd like to say at this point that this guidance was given conservatively because we provide for a 6-month delay in the rollout of the ePension project even though, at this point, the thinking is that that delay will probably not occur. But we will revisit this guidance in the later part of this year, with a view to look at whether we, yes, should be repeat -- revising the numbers closer to what we actually expected to -- to actually be eventually.
Latter part, really, is about digital banking. We believe that the fintech businesses in most countries around the world are still in early stages of growth, and the business model are still evolving. So we believe that to be a progressive fintech business, I think we really need to look forward and invest accordingly and invest in the right trend.
Our core business will continue to be a fintech wealth management platform, but we expect that to improve the overall stickiness over time, then we need improve some adjacent services we have.
We expect that we will be looking for more licenses in different jurisdiction. So when we mentioned that October last year, one of the key areas that we have in mind is actually banking, digital banking. So as you are aware, recently, we announced that we did acquired a U.K. Bank, so that will help us achieve this particular goal that we are actually looking at. Another example of service that's adjacent to wealth management is a bond marketplace that will allow us to improve the overall business for the bonds, which we think have a lot of potential, and it's still mostly in its early years of evolving.
The fourth point. The fourth point, really, is about making progress in the direction of becoming a truly global business model. I think we mostly grow up in a world whereby businesses are done in various individual country, and -- but the Internet had certainly changed many businesses tremendously. We have seen how Internet have changed the media scene, video streaming, it has changed the music business, et cetera.
In the fintech industry in the financial services, we are of the view that the changes that we're seeing on a global basis are still in these initial years of changes. Fintech have not really gone global in a media way. And the reason why that hasn't happened at that rapid rate, is because every country had their own rules and regulations and compliance, and because of that, financial institutions generally have taken a longer time to react to the potential of a new and global business model. But the fact that fintech businesses haven't truly gone global does not mean that it will not happen. It certainly will happen, it's just that it has happened at a slower pace. And I think going forward in the next few years, we're at a phase where there's a lot of potential to actually tap in this particular area.
We believe that the future of wealth management is one whereby many investors from various emerging markets will be looking for the best wealth management platforms. Across the globe, they can provide them seamless success and connectivity to global products and global exchanges. Wealth management platforms that have seamless links to good digital banking services that allow consumers and investors to manage payment flows seamlessly across borders while getting attractive deposit rates in various currencies will certainly have strong advantages.
So with that in mind, the group believes that one of the central components for the iFAST ecosystem in the future will be a digital bank located in a trusted jurisdiction. A full licensed U.K. bank for this -- fit this requirement very well, given that like -- given London's status as a top financial center with strong connectivity to the world, as forward-looking regulatory framework.
So in looking at having additional banking capability, we are essentially looking at this particular chart in terms of how our ecosystem would look like. I think the -- those who are familiar with iFAST have seen this chart in our annual report. What we've done here is to add in the digital bank to the overall diagram just so that investors can better understand what we're trying to achieve.
I think as a platform, we basically provide a range of services, too, and we sit between product providers and investors and various distribution channels. Anywhere in wealth management, which traditionally is closely linked to banking or cash, but so far, we don't have a bank license, which is why we have been keen to actually add the digital bank to the overall fintech ecosystem. So that should be the way to look at how it will be once we have successfully entered the digital bank to the ecosystem.
In most countries around the world, the biggest players in wealth management industry are actually banks. It's not surprising, given that banks have the advantage of consumers' cash sitting within the banks. iFAST have been around 22 years, 21 years as a licensed entity, and we have made substantial progresses as a wealth management platform but without some of the key advantages that the banks have. A lot more can be achieved if the group has a bank within the group. So we believe that this will essentially be making a significant difference to us as we go forward.
So adding a digital bank to the fintech ecosystem will have the effect of allowing the group to acquire more customers globally at a faster pace. I think we're quite used to opening bank accounts and using banks only within your home country. Singaporeans generally may still be quite happy with just having the bank account in just Singapore, but that's certainly not quite the case when it comes to people and investors from various other countries. A lot of people from various countries, especially in those emerging markets, that we're looking at being able to open a bank account in a place outside the home country, which is why we feel that if we have a bank and then we'll allow convenient online account opening, then we offer remittance services and offer multi-currency deposit account with attractive deposit rates, that will certainly make a significant difference.
And as we do so, we want to run the business in a capital-efficient and asset-light scalable business model. So January 7, we announced that we have signed an agreement to acquire a U.K.-based BFC Bank. So as I mentioned, we feel that this is an important step to bring us to an even higher level in the medium to long term.
So the bank currently is loss-making, and because of that, quite certainly, investors are concerned about some of the short-term losses that may actually be incurred, so we felt that we should try to quantify the potential impact. So our estimate is that the acquisition of the U.K. Bank will add about a SGD 4 million loss to the group in the current year, but we are targeting to achieve profitability for the U.K. Bank starting 2024.
The amount that we are looking to pay is GBP 25 million. In addition to that, we will be injecting a further GBP 15 million into the bank, but then, of course, it will remain within the group.
In January, we have also done a placement where we raised net proceeds of SGD 103 million through issuing 4.8% of new ordinary shares. So with that, the purchase of the bank will be fully funded. The excess capital will be used for additional working capital purposes.
So those are 4 main points that I want to talk through in terms of the 4-year plan. I will not run through the next section, which is on the performance trend. I think a lot of the charts and numbers that they have provided, you can go through them and those are self-explanatory.
But in essence, we feel that in the next 4 years, in addition to looking at growing our existing business, the 2 new parts will kick in. One would be the ePension division, that will start to kick in. We expect that that should start to contribute significantly 2023 onwards, and so between '23, 2025, I think we should be seeing the effect of a good ramp-up in overall revenue profitability from the overall Hong Kong business, and as such, the group's overall number will actually be seeing a robust growth rate as well.
The other part would really be the addition of the bank to the overall group. Certainly, there are some short-term losses, but we actually feel that these short-term losses certainly are more than worth for us to take on because the potential positive impact that we are going to see, especially for 2024 and beyond, I think it will be very substantial.
The banking business that we're looking to run, we are essentially looking at running a business model that is relatively simple. Do what the banks traditionally were created to do, which is basically to take deposits. And the difference is that we are looking at doing so, we're looking at a bank as a -- in fact looking at the world as a potential market rather than just an individual country.
I think if you look at most banks, most established banks around the world, they actually have net interest income as a key driver of their overall revenue and profitability. In a sense, we're actually looking at something pretty similar, right, having the benefit of a strong stream of recurring income from net interest income. That is something that we believe can actually make a big difference to the overall ability of the group to grow, not just as a bank, but as an overall wealth management platform as well. So that's what we are actually looking to achieve, and we believe that that can also be done without having a model that is -- without having a restriction that some banks have, which is having a very low ROE over time, right?
I think, given while we're looking at growing the net interest income business, that can be done in a relatively efficient, relatively asset-light kind of business model, particularly considering that the bulk of our revenue today and including what is going to come from the ePension business will be the [ PVs ] and the bulk is actually recurring income. So if you combine the whole thing together, I think we will get a pretty strong overall business model as we move on.
So I'll stop here, and we'll be happy to take any questions that you may have.
[Operator Instructions] So the first question that we have in the Q&A box is from [ Zu Shen ]. So his question is, as far as the estimated eMPF projection completion free contribution for net profit, similar to the one booked in third Q 2021 for FY 2022?
Sorry, are you referring to -- for this latest quarter?
Yes. Maybe, [ Mr. Shen ], you can let us know whether your question is referring to this quarter, then...
Yes, for this year.
He's asking for 2022.
For 2022, we haven't given an actual number. We don't have the immediate number at this point, but I think in terms of -- yes. In terms of the quantum, you'll probably be looking at something similar or slightly higher than what we saw in the fourth quarter that just passed. So the quarterly number that we're looking at should be slightly higher than fourth quarter number that we have just seen. Yes.
So we will -- as we progress through the year and as we give the overall updated guidance for the overall key ePension business that we may actually give a bit more specific kind of information about 2022 as well. But I think the bigger part of the overall consideration will be 2023 onwards. Yes.
[ Mr. Shen ] has a follow-up question to ask. What's the fourth quarter number of the MPF contribution?
Yes. Just let me come back to this point again.
If he would. If you just check again.
Yes. We need to do that. Can you message me? [Foreign Language].
We have another question, so we'll probably take another question from Aakash.
Great. Thank you for the presentation. I have 4 questions, if I may. The first one is just on the AUA growth. So this quarter, obviously, is one of the slowest quarters that you've had in a while, and if I look at the underlying, it seems like the B2B growth really slowed down quite significantly this quarter. Hong Kong also continued to be negative for a second quarter in a row. And China also turned slightly negative. So I just wanted to get some color from you on these trends, like what is driving these?
And then a related question to this would be like this 3% Q-on-Q growth, if we extrapolate this, it does not get you anywhere close to the 27% CAGR that you're projecting. So what will need to change to get you back to that sort of growth level?
Okay. On this point, the AUA growth is a function of 2 factors. The first and the most important factor for long-term growth projection will really be the net inflow. So if you look at Slide 7 that we have provided, you actually find that net inflow for the full year 2021 was SGD 3.7 billion, and in the footnote, we also mentioned that for the 4Q, the net inflow was SGD 0.76 billion. SGD 0.76 billion, in 3Q, it was SGD 0.87 billion. That's the quarterly number that we actually saw. So SGD 0.76 billion, some slowdown in 4Q, but certainly, if you look at SGD 0.76 billion on its own, that's still a pretty healthy level of growth rate.
So that, to us, is the most important indicator because the other factor that affect the AUA will actually be the market condition. So equity markets move up or down, or all markets move up or down, and certainly 4Q has been a very tough quarter for equity market. So because of that, you actually found that the market effect had a negative factor on the overall AUA number. And that is the reason why in terms of the overall group AUA, 4Q seems to have a very slow growth rate.
So market, in fact, it's not something that we can forecast on a quarter-to-quarter basis. As a business, what we do is we focus on ensuring that we have healthy net inflow numbers on an ongoing basis.
Of course, even the inflow numbers can actually be affected by other condition, and 4Q was a period that had some of that negative effect on that overall inflow number as well. Yes. But I think to assess the potential in the next 5 years, 7 years, I think we should be thinking in terms of the overall net inflow that we can get issued.
Understood. I think that's a fair point. Just to understand this a little bit better. So I think if I look at the B2B and B2C separately, B2B seems to have a much bigger impact from these market conditions, right? B2C, however, did not show that. So I'm just -- what is the difference here? Why is B2B slowing down a lot more than B2C AUA growth?
I think if you go to the chart as well, right, which is in the beginning of the presentation, you see that B2B obviously seems to be coming out much faster than B2C growth. And I can understand it's because of market conditions, but why is it impacting B2B more than B2C?
Yes. I think on the overall business level, we don't feel that there's any major distinction in terms of momentum between B2B and B2C. I think it could be that, if you look at the numbers on a quarterly basis and you think in the terms of growth rate on a quarter-to-quarter basis, then you might see some of the percentage number that seems to imply a bigger trend than it truly is, right?
Sometimes when the base is big, and you're looking at the percentage number and there are a few factors affecting it. I think that mainly is due to thinking of certain things in a certain way, but we don't really see that overall major difference between B2B and B2C momentum.
I see. There's not been any change in terms of your relationships on the B2B side, or any contracts being expired or something like that?
B2B side, we have a relationship with more than 500 companies. So of course, at any point in time, there will be some changes. Generally, of course, overall it's an addition and that continues to be the case, but it's only natural that there will be some changes. But the key thing is overall base that we had in terms of number of partners that we work with is actually more than 500.
Okay. Understood. The second question I have is on the margin side. So again, margins still see a decline this quarter. And I'm talking about the net revenue to AUA margin, which was something like, I think, 68 basis points last quarter and this quarter, it fell to 60 basis points. Your medium-term guidance is 65. Now, how should we think about that number? Do you expect it to go back to 65 anytime soon?
And I think on a related note, if I look at the Singapore margins, they've pretty much come off by like 20 basis points over the last 3, 4, 5 quarters. So what is driving that? Is it mainly competition in the pricing -- sort of pricing competition that you're seeing in the market?
On margins, I'll say that what you see in the latest quarter, there are a couple of effects. Firstly is the fact that transaction volume in the fourth quarter is lower than what we saw perhaps in 1 year ago or in early part of the year.
So in the short term, you tend to find that there's some volatility in the non-recurring income materially, so that can actually subtract significantly depending on the overall market condition.
So we started 2021 with a very strong number in terms of transaction income, but that number came off. Especially in fourth quarter, you can actually find that because of the lower trading volume and so on, then that number actually came down, so that actually had some impact.
Besides that, I think the other part that we saw on lower margin in would be the cash component. Cash is something whereby I think if we take 2020, which we were having a higher margin because interest rate conditions were actually -- interest rates were a lot higher, so the margin we get, net interest income on the cash flow part, it was actually higher. That came off through 2021 because of the fact that interest rates were going down and the overall net yield that we got ended up trending down in the last 4 quarters, so that's the other part that caused some of the decline.
Of course, the interest rate situation will actually be reversing given that now we're entering into a phase whereby we are expecting to see high interest rates all over the world. So the negative trend that we saw on cash in the past 1 year will start to reverse as we move forward.
There is a further point, the other component, of course, is that over time, as our contribution from stocks, business growth, that there's some overall net reduction in terms of the overall margin because stocks, on average, in the long run will have a lower margin. So on a weighted average basis, then you look at group AUA, then that tends to be a bit lower.
So those will be the key factors, I would say. We don't -- we don't really see the competition, competitive element as a major factor on the overall margin that we actually see at this point.
I see. Okay. Understood. So that 65 basis points, I think over the medium term is still a reasonable number to look at given the factors that you talked? Rates are going up, and competition is not really affecting it?
Yes. I think that will still be some reasonable number to be looking at.
Understood. The third question I have is on the digibank. I think there was a news article recently that suggested that Malaysia might announce the licenses in March, so I just want to check with you, is that your understanding as well? And then I think -- could you help us just give us some sort of thoughts on what sort of NII contribution will you expect from the Malaysian Digital Bank if you get it over the medium term? Like, what will be the split of the business, like in NII and the existing business?
I think we are not sure as yet whether we'll be successful. I think investors should also start to factor in the possibility of us not being successful for Malaysia digital banking application as well. But I think given when we are, given the fact that we already entered into agreement to purchase the U.K. Bank, I think the key thing is that, as a group, we will be able to execute the strategic intention, strategic direction that we have wanted to execute with the U.K. Bank. And, yes, that should be the way to look at it. But -- as far as the Malaysian side is concerned, [indiscernible].
So for BFC, what kind of milestone should we keep in mind? Like, what are the profit contribution projections that you would have as your base case in the next 2, 3 years?
Yes. So we have guided for a SGD 4 million negative contribution for the current year, and we are targeting for positive contribution starting 2024, probably small profit contribution, and then we are certainly targeting for a much higher number in the years that follow after 2024. And the reason is essentially because we are looking at being able to use a bank, open account on a global basis, trade deposits on a global basis, big -- certain net interest income from that. So as the deposit base grow, then that should be something that will have to grow the overall revenue for us. And certainly, given the potential of running this business, then the impact can actually be pretty substantial as long as we're successful in what we do.
And we think that we have the ability to execute this successfully, much better than most digital banks simply because of the ecosystem that we're already built on. We are in the wealth management business, so attracting cash and deposits as a bank will be something that is very much seen to be something very natural for investors.
So because of that, we believe that we can actually execute this part of the business quite well as we move on, and it's something that is relatively similar business.
We've been attracting AUA in the form of the different investment asset classes, equity funds, ETF bonds, so we feel that attracting deposits is actually likely to be simpler than attracting the investment sectors.
So positive 2024, and then much higher in the years that follow. Any sense of the numbers that you could share with us? Like, what are the numbers that you're working with as a base case for yourself?
I think in the end, it really depends on the -- Yes, well, on the time frame. So maybe one way to look at it is if we make a 1% margin, right, on the deposit, then every SGD 1 billion is SGD 10 million, right? If you add SGD 5 billion, it's SGD 50 billion. If you add SGD 10 billion, it's SGD 100 billion in terms of net revenue. That should be one simple way of looking at it. So it's how much potentially that can grow to is very much a function of how much deposit we will be able to attract in our company time frame that we are talking about.
Of course, we also mindful that in attracting deposits, it comes with some capital requirement. But as we have indicated a number of times, the 2 main factors that should be taken into account in terms of consideration. One is we're looking at running a relatively capital-efficient business model. So we want a business model that partly require the balance sheet and partly emphasizes more on the fee income even on the deposits. That's one consideration.
Second consideration is if you look at the overall business that we have on the wealth management, and you mentioned business, that's pretty much a fee-based business, it's extremely capital efficient on a ROE basis. So if I combine the 2, but then as a group, we should also be quite capital-efficient on an overall basis.
So we certainly look for the business model where we can grow, have a very high upside in terms of the ability to grow the P&L, and that to be combined with a business model that is also capital efficient and we can produce a pretty robust ROE even [indiscernible].
Okay. Understood. And if I may just squeeze last question, which is you said 6-month delay for the eMPF contribution. You're [ conservatively betting ] for that. So are you suggesting that mid-2023 is when we might start seeing the contribution in the best case?
Yes. So when we originally gave our guidance, we assumed a 6-month delay. So if you look at eMPF project, again based on in 4 days available throughout the MPF industry already, it's supposed to kick off in May 2023. So the contribution to us will kick in mainly after the whole business start to go live, and then the overall industry timeline is based on May 2023.
But when we issued the guidance in October last year, we factored in a 6-months delay just for -- just to be conservative, just to have additional buffer. Now, by having the 6-month delay, then you actually mean that we assume that revenues start to kick in in a bigger way, right, November 2023, right? So that certainly is just a short period.
So because of that, we were silent about the guidance for 2023. And even 2024, '25, yes, we use a relatively conservative cover estimate. So if things actually go as per what is being planned by the overall industry currently, then we should see that 2023, we should start to see a very meaningful contribution coming in for the group as well. But we would like to wait perhaps closer to second half of this year before we give any updated guidance. We thought that, at this point in time, it's worthwhile for us to basically alert investors to some of these, yes, potential changes in guidance as we move towards the second half of the year.
Okay. Great. That's all of my questions.
Okay. So a question from -- yes, from [ Royston ].
So the question is, China's AUA has grown by 75% year-on-year for full year 2021, yet the division incurred a net loss of SGD 5.8 million, which is higher than the SGD 4.88 million in full year 2020. What's the reason for the higher loss, and will this persist into full year 2021? How do you see prospects for the China division for this year? Maybe you can provide us with a summary of the current initiatives to grow the China business and reduce its losses.
Yes. So in the last couple of quarters, I have actually been mentioning that China business is at a stage where we feel that it's important for us to focus on ensuring the growth momentum continue, and as a result, we saw a slightly higher loss of 2021 compared to 2020.
If I look into 2022, we expect that China business will still be generating some losses. The current expectation is that losses could be slightly higher than 2022. That is the current expectation, and we are looking towards getting to the procurement level, yes, in 2024. That's where we are currently.
And we have a question [indiscernible].
So can you please comment on the competitive dynamics with digital brokers? Competition -- a competitor has gotten licenses that can compete directly with iFAST. What part of the business will be challenged the most, and what are most defensible things? Also, can you please share the strategy to reach SGD 100 billion AUA target in 2028? From the current SGD 19 billion, what percentage would be inorganic? What percentage would be organic? And the inorganic partial percentage from the new U.K. license?
On the first part of question, competitive dynamics with digital brokers, competitor has gotten licenses that can compete directly with iFAST. I believe you're referring to Futu and probably Tiger because they announced that they obtained a trading membership with [indiscernible] recently, trading clearing membership.
I think the reality is both Futu and Tiger have been a competitor on the B2C space for us in Singapore for last year, right? So that has been the case, and that will continue. But at the same time, they're also business partners for us on the B2B side of the -- from other business, they also are a client on the B2B side. So that is the nature of the overall platform business that we run.
If you look at the unit trust part of the business, in a sense, the various [ FA ] firms are competitors to the B2C part of the business, but they are clients on the B2B part of the business. Here, of course, yes, there is a different type of businesses, stockbroking instead of just a unit trust. But the way to look at it is yes, that's the way it is.
So we are looking at unit trusts -- stockbroking in an industry where actually there are many players, and that has been the case all along. And of course, as a matter of long-term business planning, we should always be assuming that the overall competition in stockbroking industry can only increase, so that's part and parcel of the overall planning. So in terms of why it's happened, we don't see that as something that changed our views very much. The second question, the strategy to reach AUA -- SGD 100 billion AUA target. So when we talk about the SGD 100 billion AUA target, we primarily want to be able to achieve that on the basis of just organic growth. I think for any business, it's important that we're able to grow organically, all right. Organic growth momentum need to be there. If it's not there, then it probably means that certain part is not quite right about our overall business model. So yes, so we would like to be able to achieve SGD 100 billion AUA by 2028 from just organic growth.
That, of course, does not mean that we will not be looking at inorganic growth and if those opportunity comes along, we would like to be able to obtain those opportunity, and that can add on to the overall growth for the group as move on.
And all these years, I think that strategy has been predicated based on the investment products, mainly, but with us looking at having a bank within the group, then I think the growth will also come from the deposit side, the cash. That, we feel, can actually be something that grows faster because that's the easiest product for investors to understand.
Essentially, what they need is trust. They essentially need to trust us, trust say, iFAST bank, right, and trust the jurisdiction that they're banking with. And if that's the case, then I think the growth can actually come in quite rapidly.
Next question is from [ Reggie ]. In 4Q, expenditure shot up substantially by SGD 8.2 million. What drove this strong increase?
Expenditure, I believe you are referring...
Capital expenditure.
To capital expenditure, yes. I think it comes in the various areas, including the Hong Kong site, the ePension project, as well as other various platform business -- existing platform business in a different country. Yes, we continue to add on to the overall capability and upgrade of data center and things like that. So I think the -- yes, for 2021, beyond 2021 especially the ePension [indiscernible].
We'll pause you for a while to take a question by Krishna. Krishna, we can't really hear you.
Since we can't hear Krishna, we will move on to a text question by Andrea. So Andrea's question is could we get a gauge on OpEx for 2022?
OpEx. Operating expenditure. I think for operating expenditure for the platform business, the existing business that we have, we generally try and manage the business such that we're able to grow the net revenue faster than we grow the operating expenditure. But 2022 will also be a year whereby we have a new business, so assuming the successful completion of the acquisition of the U.K. Bank, so that should start to have additional operating expenditures starting in early April of this year, so that will add on to it.
And -- Yes. So the actual number is something that we perhaps may provide more specific detail in subsequent moments.
The next question by Andrea is, could we get some color on Harvester Capital? How does this investment play in to iFAST's business model? And what are the milestones to achieve over the next 2 years for iFAST's additional investment in the company?
Yes. The acquisition of a minority stake in Harvester Capital, the thinking is a bit similar to a certain minority stake acquisition that we take in some FA firm in Singapore. So Harvester is essentially an FA firm in Malaysia that we work closely with, and -- so in Singapore, if you notice in the past 10 years, we have taken stakes, a couple of minority stakes in certain FA firms. So the idea really is having that minority stake will allow us to move better together in growing their business overall for both their people such that for the platform. And that same thinking is actually there for Harvester Capital.
So this is the -- so far, the only FA book stake that we've acquired for Malaysia itself. As a group, it's something that we've done a few times in Singapore, so that is the similar kind of thinking and direction.
So the next question is from [ Glen ]. So under the current conditions, are wealth management and investment product doing well?
I think if you are looking at very short-term supplementing on a quarterly basis, and of course, there are fluctuations in terms of the performance of the business, and as well, there are fluctuations also in terms of AUA of this various investment products. So that, of course, in the very short term, can actually affect some of the quarterly numbers.
In the long run, of course, we think that what matters most is really the ability of the group to execute its strategy well and continue to attract inflows and net inflow will become the key numbers to be looking at.
So [indiscernible] follow-up question, I think was previously asking about the eMPF project, its contribution to the net profit for this quarter.
The contribution was less than SGD 1 million for the latest quarter.
Yes.
Less than SGD 1 million for the latest quarter, so yes, we are thinking in terms of a similar kind of quantum for 2022, maybe slightly higher. Yes. Maybe -- yes, not similar for 2022, but I think the bigger change really will be as we move into 2023.
[indiscernible]
Similar on a quarterly basis. Similar on the -- yes, when I say similar, I mean similar on a quarterly basis for 2022. Just on that quarterly question, similar situation.
Does anyone else have any more question? Krishna. So Krishna, yes, you will type out your question, okay. So this new question from Krishna.
So first, what are contract costs? And again, why is asset under custody not growing in line with AUA, especially year-on-year?
And his third question is how much is China property bond exposure for bond market making portfolio?
And his fourth question is when do you book the revenue from clearing and the loan services that you offer for terms?
What are contract costs? J.P., any idea what they are referring to?
If Krishna is referring to the contract costs of the Pension project, perhaps that's his question, then we do have some contract costs related to the Pension project [indiscernible]. Yes, it's capitalized in the balance sheet, and it's roughly about -- in the region of about SGD 3 million.
Right. Pre-operating expense.
Yes, to be [indiscernible].
Yes. Pre-operating expenses, yes, there's some pre-operating expenses, yes, that we incur for ePension project, and they will be [indiscernible] when the project goes live in 2023.
It's like a setup cost, like do the advertising, yes.
And question 2, why is assets under custody not growing in line with AUA? Where is your assets under custody number?
When we look at our AUA, so essentially that's the assets that are custodized, so I'm not sure what he mean by that.
Yes, I'm not sure which assets under custody that you're referring to. Yes. So AUA generally is -- for the [ power ] business and this is essentially assets under custody. Yes. Third question, how much is China property bond exposure, for your bond market trading portfolio? I think it has been in the region of a few million dollars. So in the second half of last year because of the fact that -- yes, it was a couple of millions, right? There's an over exposure. And because of the fact that property bonds -- China property bonds have slowed down so badly, so if you would have noticed in our results that in 3Q and 4Q, we actually saw some losses in terms of the investment income side because of this bond holding, even though it's just a few million, but because of quantum and sell-down, actually they show up in terms of the overall number. Yes. So hopefully, that should reverse as we move into 2022, or rather, we won't continue to see the negative number as we [indiscernible] 2022.
Question 4, when do you book the revenue for clearing and settlement services that we offer for third-party? Those will essentially be part of the non-recurring income that we report, yes. So that -- yes, it is part of the stockbroking fees that we earned, so you should see that under the non-recurring income revenue that we report.
When will the loss -- SGD 4 million loss from PFC be booked? We expect that to be through the 9 months, second to fourth Q of 2020. Yes. So the SGD 4 million that we're referring to, we're looking at the P&L impact, not the balance sheet.
Next question from [indiscernible]. Just wanted to check on the global fintech ambition. It sounds like you are keen to pursue more M&A opportunities and/or licenses aside from the U.K. Bank. Is that fair?
I think when we see global fintech opportunity, I think the key point we wanted to deliver in our presentation slides is more about the overall business model. So more on the overall business model, okay, we'll operate as a wealth management platform on a global basis. Wealth management platform attracting clients' assets and client cash on a global basis for clients from different country. That's what we -- that's the main message we wanted to deliver. Not so much that we want to go around the world to buy companies all over; not so much there. The U.K. Bank acquisition is something that will be important, but in the overall group strategy, and that's why that acquisition is actually important for us. But in terms of being able to grow on an ongoing basis, we certainly will want our growth to be driven primarily by organic growth.
I think Krishna's question is on the...
Yes. Krishna, I think, just now, he has clarified that he was referring to the [ high-class ] bank accounts, which is something that we show in the balance sheet position. So that is essentially referring to the client money that is in transit for the different trade settlement. So that could vary. Does not necessarily mean that [indiscernible] goes by a certain quantum, then this number has to follow suit. It's just a trade settlement in transition, kind of a number for client's bank account, so we could then adjust.
Yes. So the number that you see for the client, client bank account number. Yes, that is -- there are 2 components of that number. One component is the money that is in the client's trust account or, in other terminology we use as well is cash account, where they leave the money there with a view to investing in stocks, et cetera at some point.
And there's another part of it, which is really more transition money. Money moving in and out as a client buy and sell. So these are transition money, basically a subscription and redemption account as well, so those numbers are all captured under this part.
So the transition money, the subscription redemption money are very volatile because it depends on transaction volumes, so it will even out. So the number that you're looking at is actually a combination of it.
Next, we have a question from Yong Hong.
I think I just want to clarify on the Hong Kong eMPF project, so I think you may have provided us some update that the platform could be live in May 2023 based on current timeline. So that is -- could I clarify that is when you start migrating the trustees into the new platform, which would take 1 or 2 years?
And secondly, can I clarify if your Hong Kong guidance take these migration fees into account? So basically, I'm just getting some color if the fee contribution would normalize after the initial 1 or 2 years to a more sustainable basis through the remaining 5 years? That's my first question.
Yes. The migration will happen over a 2-year period and because of scale of project, it will be -- Yes, that trusted by trustee, so you should start to see the initial part of it in 2023 and then ending or completing the migration by 2025.
As far as implication, the revenue implication for iFAST is concerned, we should start to see that contribution starting 2023 and growing in 2024, growing further in 2025. Yes, subsequently, there would still be likely some growth but at a smaller pace. That's -- yes, that's the way we look at it.
The actual quantum is something that we'd like to give an update. The actual quantum for Hong Kong business is all something that we will be able -- like to give an update in the second half of this year.
Got it. And also maybe just to clarify on the tax rate. I think the Singapore operation has benefited from some incentive scheme. So how should we think about the tax rate on an ongoing basis, at least through 2025?
Yes. Singapore, we have some tax benefit that bring the rate down to, I think 13.5% for -- but not for 100% of the income, or part of it may have some concessionary tax rate.
On the group basis, you should just be expecting that it will be -- on the profitable country, it should be in the teens, right, as it move on. Of course, if you look at it on the group number, that is sort of complicated by the fact that certain countries are incurring losses, still. But for the countries that are profitable, so take Singapore, Hong Kong, Malaysia, then you should be looking at them, looking at maybe mid- to high teens in terms of tax rate.
Got it. And also just to follow up on your operations in China, I think you also mentioned that there could be some direct application or acquisition of license. Can we just get a sense on what kind of additional license that you could be potentially looking at?
We didn't mention specifically which license. We mentioned that we could be looking at improving the range of the products and services in China, so that could be through application of any new licenses, or past acquisition of certain businesses, but we haven't gone through the details.
Yes. At this point, without anything imminent, so I'd rather not discuss too much detail at this point, right? It's not imminent.
Okay. Maybe just 2 more small minor questions. So I realize that the associate loss tend to be the widest in 4Q. I think that was true in 4Q '20 and 4Q '21. Just out of curiosity, is there anything that I'm missing out?
Yes. I think it's one of the -- well the FA firm, they tend to book their bonuses in the 4Q, which then cause them to report. Also, at the group level, then we end up consolidating that we -- I mean, not consolidating but equity account the numbers, so then the 4Q number end up looking not so good. Yes, it's because at a FA company level, they provide for the bonuses in the fourth quarter.
Okay. Got it. And also just a final question on this line called uncompleted contracts on your current asset. I think there was quite a big decline, and could I just understand what is driving this? And if there's any implication on the profitability of the group? This will be my last question.
Sorry, your question again is why is there a what?
I think there was a sharp drop in the uncompleted contracts in your current asset. So maybe could I just understand what is driving this? And if there's any implication on profitability or on the group?
[indiscernible] are you there? can you take this question?
Okay. So the uncompleted contracts appear in the current asset as well as appear in the current liabilities. So mainly, the unsettled [indiscernible] is subject to daily balance trade volumes from [indiscernible]. So not really even from the AUA and the other sales business.
Right. Happy [indiscernible] to everybody.
At this time, there are no more questions in the Q&A box, as well as no more attendees raising hand to ask question, so I think we can end of our session for today.
Thank you, everyone.
Yes. Thank you.