Earnings Call: Q4 2021

Feb 14, 2022

Hi, everyone. Good morning. Thank you for attending iFAST Corp., our fourth quarter 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. Let me pass the time over to Mr. Jean Paul Wong. Thank you, Joy, and good morning to everybody who has joined us for our results briefing. I will run through key summary and section one, touching on the financial results before Mr. Lim Chung Chun will carry on with section two and three, and we will then conclude with the usual Q&A session. Moving on to key summary, the group's AUA, the assets under administration, continue to register new record levels, reaching SGD 19 billion as at December 31, 2021. This is a growth of 31.5% year-on-year. Within this AUA, the key investment asset classes from unit trust, that grew to a record SGD 13.89 billion as at December 31, 2021. That is a growth rate of 37.5% 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 remain healthy in fourth quarter 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 four-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 January 7 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 page 26 of our presentation deck, conservatively provides for a six-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 propose a dividend of 1.4 cents per ordinary share, an increase of 40% year-on-year compared to the final dividend for full year 2020, which was at 1 cent 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. As shared, our group AUA grew 31.5% year-on-year to SGD 19 billion as at 31st December 2021. 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. Moving into the gross UT subscriptions for our unit trust. That also achieved or hit a record number of 7 billion, slightly above 7 billion for full year 2021. Moving on to section one, which is our financial results. 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 19.65 million. Looking at our net profit, it rose 5.5% year-on-year to SGD 7.2 million in 4Q 2021. Our earnings per share was at 2.60 cents for 4Q 2021. That is a 3.6% year-on-year growth, and our dividend per share, as mentioned just now, is at 1.40 cents 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. 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. Our net profit was up 44.8% year-on-year to SGD 30.63 million. EPS for full year 2021 stood at 11.1 cents, which is an increase of 42% year-on-year, and dividend per share will be at 4.80 cents for the full year, which is up 45.5% year-on-year. Again, the final dividend for 2021 will be subject to approval at the upcoming AGM. This slide shows a trend in terms of our financial results over the last five financial years, and it shows a positive trend where gross revenue and net revenue have been growing over the years. Net profit as well has been growing over the last few years, especially the last two years and 2021. Moving on to the PBT margin for our group, which is based on net revenue. In 2021, we saw an improvement compared to 2020. We saw a PBT margin for 2021 at 31.6%. For ROE, there is an improvement in 2021, where ROE stood at 25.8%. For the different financial indicators over the last five years, EBITDA 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. Going a bit deeper into the cash and other investments, 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 at 31st December. There are no bank loans, so it is 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, as at 14th February 2022, it stood at 290.98 million shares. 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, total non-current assets stood at SGD 70.2 million. Total current assets stood at SGD 154.64 million. The total assets amounted to SGD 224.85 million as at 31st December. 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. The total non-current liabilities and current liabilities amounted to a total of SGD 97.2 million for total liabilities. When we include total equity and liabilities, it was at SGD 224.85 million as at 31st December. The final slide for the financial results segment. The proposed final dividend, just a little bit more details here. For the final dividend for full year 2021, as mentioned, the directors proposed a dividend of 1.4 cents per ordinary share, which is 40% higher compared to the final dividend for full year 2020, which was at 1 cent per ordinary share. This will be subject to approval by shareholders at our AGM to be held on 25th of April this year. The proposed final dividend will bring the total dividend to 4.8 cents for full year 2021, which is 45.5% higher than the total dividend of 3.3 cents per ordinary share for full year 2020. Payment date will be on 19th of May 2022. I will now invite Chung Chun to present on section two and three. Chung Chun. Hi, everyone. I would like to talk about iFAST's four-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 first talked about five-year plan. Right now, given that we are in a new calendar year, I thought that we updated to a four-year plan instead of five-year plan. Essentially, we are focusing more specifically between now and the year 2025. We basically summarize in a few key points on this four-year plan. The first is really to get bigger and better. That is 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. At the same time, continue to strive for bigger scale. We previously talked about target of SGD 100 billion by 2028. The second point really is about Hong Kong. The next four years, we expect that we will 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 the overall existing platform. The third point is about digital banking and other capabilities. Adding digital banking to the group's iFAST Fintech Ecosystem and making strategic investment in adjacent fintech capabilities are important to us. All this while ensuring that wealth management will remain a core service for us. At the same time, 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 lot more scalable for our overall business. Let me elaborate on each of the point a bit more. The first point on getting bigger and better, we basically have continued to make progress on this front in the various markets that we are in, B2B, B2C, and iGM. In recent months, we started to release 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 first mentioned about this in 2018, so at that time, we were talking about a 10-year timeframe. 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 at the end of last year to get to SGD 100 billion by 2028, then we are looking at a CAGR, or compound annual growth rate, of 27% per year. We will continue to work on enlarging our overall iFAST Fintech Ecosystem because in the internet space, in the fintech space, having the right ecosystem, having the right seamless kind of movement across a different part of the system is actually important. That is certainly something that will continue to be ongoing work in progress. Our focus will continue to be on ensuring the business model is scalable, capital efficient, and derive the majority of our revenue from recurring. 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 four years, particularly starting 2023, and then moving on to 2025. We expect that our existing wealth management platform business will continue to grow, but the new ePension division will start to contribute substantially starting 2023. That is our current expectation. The ePension division will involve the operation of admin services for MPF scheme, as well as ORSO scheme. MPF will, of course, be the much bigger part to the whole thing. 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 add to our group AUA number, but it will add a strong stream of recurring service fee to the group. Close to 3 months ago, when we released our third quarter results, we gave the following guidance as shown in this particular slide. We did not mention much about 2023, but we mentioned about 2024 and 2025. We would like to say at this point that this guidance was given conservatively because we provided for a 6-month delay in the roll-out of the ePension project, even though at this point, the thinking is that delay will probably not occur. But we will revisit this guidance in the later part of this year with a view to looking at whether we should be revising the numbers closer to what we actually expect it to actually be eventually. The third point 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 models are still evolving. 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 to give them some adjacent services for that. We expect that we will be looking for more licenses in the different jurisdictions. When we mentioned that at the end of October last year, one of the key areas that we had in mind is actually banking, digital banking. As you are aware, recently we announced that we are going to acquire a U.K. bank. That will help us to achieve this particular goal that we are actually. Another example of a service that is 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 is still also in its early years of evolving. The fourth point. 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, but the internet has certainly changed many businesses tremendously. We have seen how internet has changed the media scene, the 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 are seeing on a global basis are still in its initial years of changes. Fintech have not really gone global in a material way. And the reason why that has not happened at that rapid rate is because every country has its 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 have not truly gone global does not mean that it would not happen. It certainly will happen, it is just that it has happened at a slower pace. And I think going forward, in the next few years, we are at a phase where there is 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 world that can provide them seamless access 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 their payment flow seamlessly across borders while getting attractive deposit rates in various currencies, will certainly have strong advantages. With that in mind, the group believe that one of the central components for the iFAST Fintech Ecosystem in the future will be a digital bank located in a trusted jurisdiction. A full licensed U.K. bank will fit this requirement very well, given London's status as a top financial center with strong connectivity to the world, as well as looking at regulatory framework. In looking at having digital banking capability, we are essentially looking at this particular chart in terms of how our ecosystem will look like. I think for those who are familiar with iFAST, you have seen this chart in our annual report. What we've done here is to add in the digital bank part 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 to and we see between product providers and investors in various distribution channels. I think in wealth management, which traditionally is exclusively 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 a digital bank to the overall fintech ecosystem. That should be the way to look at how we'll be once we have successfully added a digital bank to the ecosystem. I think in most countries around the world, the biggest players in wealth management industry are actually banks. This is not surprising given that banks have the advantage of a consumer's cash sitting within the banks. iFAST have been around for 82 years, 81 years as a licensed entity. And we have made substantial progress as a wealth management platform. But without some of the key advantages of the fintech, a lot more can be achieved if a group have a bank within the group. We believe that this will essentially be making a significant difference to us actually. I think 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 a bank account in just Singapore. But that's certainly not quite the case when it comes to people or investors from various other country. A lot of people from various countries, especially those from emerging markets, are actually looking at being able to open a bank account in a place outside their home country. Which is why we feel that if we have the bank, and then we allow convenient online account opening, and then we offer remittance services, and offer a 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. January 7th, we announced that we have signed an agreement to acquire the U.K.-based BFC Bank. 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. 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. We felt that we should try to quantify the potential impact on the group. Our estimate is that 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 35 million. In addition to that, we will be injecting a further GBP 15 million into the bank, but that, of course, will be within the group. In January, we have also done a placement where we raised a net proceeds of SGD 103 million through issuing 4.8% of new ordinary shares. With that, the purchase of the bank will be fully funded. The excess capital will be used for additional working capital purposes. Those are the four main points I want to talk through in terms of our four-year plan. I will now run through the next section, which is on the performance trend. I think a lot of the charts and numbers that we have provided, you will be able to. Those are self-explanatory. But in essence, we feel that in the next four years, in addition to looking at growing our existing business, two new parts will kick in. One will be the ePension division that will start to kick in. We expect that that should start to contribute significantly 2023 onwards. Between 2023 to 2025, I think you should be seeing the effect of a good ramp-up in overall revenue profitability from the overall Hong Kong business. 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 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 worthwhile for us to take on because the potential positive impact that we are going to see, especially from 2024 and beyond, I think will be very substantial. The banking business that we are 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. The difference is that we are looking at doing so while looking at the world as a financial market rather than just 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 are 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. That is 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. I think given while we are looking at growing the net interest income business, that can be done in a relatively capital efficient, relatively asset-light kind of a business model. Particularly considering that the bulk of our revenue today and including what is going to come from the ePension business will be fee-based and a bulk of it is essentially recurring income. If you combine the whole thing together, I think we will get a pretty strong overall business model as we move on. I will stop here, and we will be happy to take any questions that you may have. If anyone here has any question, you may use the Q&A function to type your questions, or you may also use the raise hand function to let us know that, and we will let you unmute yourself to ask your question. The first question that we have in the Q&A box is from Zi Xuan. His question is, "What is the estimated eMPF project 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? Yeah. Maybe Zi Xuan, you can let us know whether your question is referring to this quarter. I think it's for. For- Yeah, for this year. It's, I think, for 2022. For 2022, we haven't given the actual number. We don't have the immediate number, at this point, but I think 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. The quarterly number that we are looking at should be slightly higher than fourth quarter number that we have just seen. As we progress through the year, and as we give the overall updated guidance or the overall ePension business, then we may actually give more specific kind of information about 2022 as well. But I think the bigger part of the overall consideration will be 2023 onwards. Zi Xuan has a follow-up question to ask, "What's the fourth quarter number for the ePension contribution? Just let me come back to this point again. JP, you just check that. Winnie, you there? Can you message me some of the actual number? We have another question. We'll probably take another question from Aakash. Hi, Aakash. You may unmute yourself to ask your question. Great. Hi, good morning. Thank you for the presentation. I have four questions, if I may. The first one is just on the AUA growth. This quarter obviously is one of the slowest quarters that you've had in a while. 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. I just wanted to get some color from you on these trends, like what is driving these? A related question to this would be, this 3% Q1 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, AUA growth is a function of two factors. The first and the most important factor for long-term growth projection will really be the net inflow. If you look at slide seven 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 fourth Q, the net inflow was SGD 0.76 billion. SGD 0.76, in the Q, it was SGD 0.87. That's the quarterly number that we actually have seen. So SGD 0.76, some slowdown in fourth Q, but certainly, if you look at SGD 0.76 billion on its own, that's still a pretty healthy level of growth rate. That, to us, is the most important indicator because the other factor that affect the AUA will actually be the market condition. Equity markets move up or down, or foreign markets move up or down, and certainly fourth Q has been a very tough quarter for equity market. Because of that, you actually found that the market effect had a negative factor on the overall AUA number. That is the reason why, because of the overall group AUA, the fourth Q seems to have a very slow growth rate. Market effect is 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 net inflow numbers can actually be affected by market condition, and fourth Q was a period that had some of that negative effect on the overall net inflow number as well. I think to assess the potential in the next five years, seven years, I think we should be thinking in terms of the overall net inflow that we can get each year. Understood. I think that is a fair point. Just to understand this a little bit better, 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. 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, which is in the beginning of the presentation, you see that B2B obviously seems to be coming off much faster than B2C growth. I understand it is because of market conditions, but why is it impacting B2B more than B2C? Yeah. I think on the overall business level, we do not feel that there is 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 if you think in terms of the 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 are looking at a percentage number and there are few factors affecting it, I think that may lead you to think of certain things in a certain way. But we do not really see that overall major difference between B2B and B2C momentum. I see. There has 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 relationship with more than 500 companies. Of course, at any point in time, there will be some changes. Generally, of course, overall is addition, and that continues to be the case. But it is only natural that there will be some changes along the way. But the key thing is the overall base that we have in terms of the number of partners that we work with is actually more than 500. Okay. Understood. The second question I have is on the margin side. Again, margins did see a decline this quarter, and I am talking about the net revenue to AUA margin. That 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. How should we think about that number? Do you expect it to go back to 65 anytime soon? I think on a related note, if I look at the Singapore margins, they have pretty much come off by like 20 basis points over the last three, four, five quarters. What is driving that? Is it mainly pricing competition that you are seeing in the market? On margins, I will say that what you see in the latest quarter, there are a couple of effects. Firstly, it is the fact that transaction volume in fourth quarter is lower than what we saw, perhaps, in one year ago or in early part of the year. In the short term, you tend to find that there is some volatility, in the non-recurring income particularly. That can actually fluctuate significantly depending on the overall market condition. We started 2021 with a pretty strong number in terms of the transaction income, but that number came off, and especially in fourth quarter, you actually find that because of the lower trading volume and so on, then that number actually came down. That actually had some impact. Besides that, I think the other part that we saw lower margin in would be on the cash component. Cash is something whereby I think if you take 2020, we are actually having higher margins because interest rate conditions were actually. Interest rates were a lot higher, so the margin we get, the net interest income on the cash component 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 trended down in the last fourth quarter. That is the other part that caused some of the decline. Of course, the interest rate situation will actually be reversing, given that now we are entering into a phase whereby we are expecting to see higher interest rates all over the world. The negative trend that we saw on cash in the past one year will start to reverse as we move forward. Those are some of the points. The other component, of course, is that over time, as our contribution from stocks business grows, then there is some overall net reduction, in terms of the overall margin because stocks on average, in the long run, will have a lower margin. On a weighted average basis, then you look at group AUA, then that tend to be a bit lower. Those will be the key factors, I would say. We do not really see the competitive element as a major factor on the overall margin that we actually see, that is more important. I see. Okay, understood. That 65 basis point, I think over the medium term is still a reasonable number to look at, given the factors that you've talked. Rates are going up, and competition is not really affecting it that much from this point. Yeah, I think that will still be some reasonable number to be looking at. Understood. The third question I have is on the digibanks. I think there was a news article that suggested that Malaysia might announce the licenses in March. Just want to check with you, is that your understanding as well? Could you help us just give us some sort of thoughts on what sort of NII contribution, would you expect from the Malaysian digital bank, if you get it, over the medium term? What will the split of the business like in NII and existing business? We are not sure as yet whether we'll be successful, but 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 where we are, given the fact that we already entered into agreement with Chase UK bank, I think the key thing is, as a group, we will be able to execute the strategic intention, strategic, that we have wanted to execute with the U.K. bank. Yeah, that should be the way to look at it. But as far as the Malaysian side is concerned, wait for updates. BFC, what kind of milestone should we keep in mind? What are the profit contribution projections that you would have as your base case the next 2, 3 years? Yeah. We're guided for a SGD 4 million negative contribution for current year, and we are targeting for positive contribution starting 2024, for more positive contribution. We are certainly targeting for much higher number in the years that follow after 2024. The reason is, essentially because we're looking at being able to use a bank, open account on a global basis, attract deposits on a global basis, and make a certain net interest income from that. As a deposit-based group, that should be something that will help to grow the overall revenue for us. 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. We think that we have the ability to execute this successfully, much better than most digibanks, simply because of the ecosystem that we've already built up. We are in a 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. Because of that, we believe that we can actually execute this part of the business quite well as we move on. It's something that is a relatively simple business. We've been attracting AUA in the form of the different investment asset classes, equity funds, ETF, bonds. We view that attracting deposits is actually likely to be simpler than attracting the investment asset classes. Positive 2024 and then much higher in the years that follow. Any sense of the numbers that you could share with us? What are the numbers that you're working as a base case for yourself? I think, in the end, it really depends on what kind of timeframe. Maybe one way to look at it is, if we make 1% margin, on the deposit, then every billion is SGD 10 million. If you add SGD 5 billion, it is SGD 50 billion. You add SGD 10 billion, it is SGD 100 billion. It does not matter. That should be a possible way of looking at it. As to how much potentially that can grow to is very much a function of how much deposit we will be able to attract and what kind of time frame that we are talking about. Of course, we are also mindful that in attracting deposits, it comes with some capital requirement. But as we have indicated a number of times, there are two main factors that should be taken into account in terms of the considerations. One, we are primarily capital-efficient business model. We want a business model that partly require the balance sheet and partly emphasizes more on the fee income given our deposits. That is one consideration. Second consideration is we look at the overall business on the wealth management and the e-merchant business, that is pretty much a fee-based business that is extremely capital efficient on a ROE basis. So if I combine the two parts, then as a group, we should also be quite capital efficient on the overall business. 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 can produce a pretty robust ROE even in the long run. Okay, Kanishka, thank you. If I may just squeeze in the last question, which is, you said six months delay for the eMPF contribution. You are considerably accounting for that. Are you suggesting that mid-2023 is when we might start seeing the contribution in the best case? Yeah. When we originally gave our guidance, we assumed a six-month delay. If you look at the eMPF project, again, based on info that is available throughout the eMPF industry already, it is supposed to kick off in May 2023. So the contribution to us will kick in mainly after the whole business starts to go live, and the overall industry timeline is based on May 2023. But when we issued our guidance in October last year, we factored in a six months delay just to be conservative and just to have additional buffer. Now by having the six-month delay, then you actually mean that we assume that revenue will start kicking in a bigger way November 2023. So that certainly is just a short period. Because of that, we were silent about the guidance for 2023. Given 2024, 2025, we use a relatively conservative count estimate. 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. We would like to wait perhaps closer to the second half of this year before we give any updated guidance. We thought that at this point in time, it is more worthwhile for us to basically alert investors to some of these potential changes in guidance as we move towards the second half of the year. Okay, great. Thank you very much for that. That is all my questions. Okay. Okay. We have another question from Alexander. Royston. Royston. from Royston. 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 is the reason for the higher loss, and will this persist into full year 2021? How do you see prospect 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. Yeah. 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 that growth momentum continue. As a result of that, we saw a slightly higher loss for 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 working towards getting to the breakeven level in 2024. That's how we are targeting. We have a question from Alexandra. Can you please comment on the competitive dynamics with digital brokers? A competitor has gotten licenses that can compete directly with iFAST. What part of the business will be challenged the most, and what part most defensible? Also can you 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? In the inorganic portion, what percentage from the new U.K. license? On the first part of the 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 HS, recent trading clearing membership. I think the reality is both Futu and Tiger have been competitor on the B2C space for us in Singapore for last year, right? That has been the case, and that will continue. At the same time, they're also business partners for us on the B2B side of the other business. They are also our client on the B2B side. 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 competitors to the B2C part of the business, but they are clients on the B2B part of the business. Yeah, of course, it's a different type of businesses, stockbroking instead of just a unit trust. But the way to look at it is, that's the way it is. We are looking at unit trust, stockbroking being an industry where actually there are many players, and that has been the case all along. Of course, as a matter of long-term business planning, we should always be assuming that the overall competition in the stockbroking industry can only increase. So that's part and parcel of the overall planning. In terms of what has happened, we don't see that as something that changed our views that much. The second question, the strategy to reach SGD 100 billion AUA target. 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. Organic growth momentum needs to be there. If it's not there, then it probably means that a certain part is not quite right about our overall business model. 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. 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 we move on. 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 the growth will also come from the deposits, like the cash. That we feel can actually be something that grow faster, because that's the easiest product for investors to understand. Essentially what they need is trust. They essentially need to build trust, us, trust, say, iFAST Bank. They trust the jurisdiction that they're banking with. If that's the case, then I think the growth can actually come in quite rapidly. The next question is from Reggie. In Q4, expenditure shot up substantially by 8.2 million. What drove this sharp increase? Expenditure, I believe you're referring To CapEx expenditure. To CapEx expenditure. I think it comes in the various areas, including the Hong Kong side with the ePension project, as well as all the various existing platform business in the different country. We continue to add on to the overall capability and upgrade our data center and things like that. So I think for 2021, a lot of 2021 especially, the ePension also starts to help. We will pause here for a while to take a question by Krishna. Hi, Krishna. You may unmute yourself to ask your question. Hi, Krishna. Can you hear me? Hi, Krishna. Can you hear us? We cannot really hear you. Okay, since we cannot hear Krishna, we will move on to next 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 are 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 expenditure starting probably April of this year. So that will add on to it. The actual number is something that we perhaps may provide more specific detail in subsequent quarters. The next question by Andrew is, could we get some color on Harveston Capital? How does this investment play into iFAST business model, and what are the milestones achieved over the next two years for iFAST additional investment in the company? Yeah. The acquisition of a minority stake in Harveston Capital, the thinking is a bit similar to certain minority stake acquisition that we take in some FA firm in Singapore. Harveston is essentially an FA firm in Malaysia that we work closely with. In Singapore, if you notice in the past 10 years, we have taken stakes, a couple of minority stakes in certain FA firm. The idea really is having that minority stake will allow us to, in a more better together, in growing the business overall for both FA firms. Just for the platform. That same thinking is actually there for Harveston Capital. This is so far the only FA firm stake that we form Malaysia itself. As a group, it is something that we have done a few times in Singapore. That is a similar line of thinking and direction. The next question is from Glenn. Under the current conditions, are wealth management and investment product doing well? I think if you are looking at very short term, short term meaning on a quarterly basis, then of course, there are fluctuations in terms of the performance of the business. There are fluctuations also in terms of the AUA of these various investment products. 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 for the group to execute strategy well and continue to attract inflows, and that in turn will become the key numbers to looking at. So, yeah. Question, follow-up question, I think was previously asking about the eMPF project fee contribution to the net profit for this quarter. The contribution was less than SGD 1 million for the latest quarter. Yes. Yeah. Less than SGD 1 million for the latest quarter. So you will be thinking in terms of similar kind of quantum for 2022. Maybe slightly higher. Yeah, maybe kind of similar for 2022. But I think the bigger change really will be as we move into 2023. Similar on a quarterly basis. Yeah, when I say similar, I mean similar on a quarterly basis, 2022. Just on the contribution. Does anyone else have any more questions for Krishna. Hi, Krishna. Yeah, you have typed out your question. Okay. So a few questions from Krishna. So first, what are contract costs? And second, why is asset under custody not growing in line with AUA, especially year-on-year? And the third question is, how much is China property bond exposure for bond market making portfolio? And the fourth question is, when do you book the revenue from clearing and settlement services that you offer for third parties? What are contract costs? JP, any idea what they are referring to? If Krishna is referring to the contract cost for the pension project, perhaps that is a question that we do have some contract costs related to the. Yes. It is capitalized in the balance sheet and it is roughly about in the region of 3 million. Right. Pre-operating ex- It has to be amortized. Yeah, pre-operating expenses. Yes, there's some pre-operating expenses that we incur for each mentioned project, and that will be amortized when the project goes live in 2023. It's like a set of costs to be amortized. Yeah. Question two, 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 custodied. I'm not sure- Yeah, I'm not sure which assets under custody that you're referring to. AUA generally is, for the bulk of business at least, is essentially assets under custody. Third question, how much is China property bond exposure for bond market trading portfolio? I think it has been in the region of a few million dollars. In the second half of last year, because of the fact that it was a couple of million in terms of overall exposure, and because of the fact that China property bonds was sold out so badly. You would have noticed in our results that in the Q4, 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, they actually show up in terms of the overall number. Yeah. Hopefully that should reverse as we move into 2022, or rather, we won't continue to see the negative number as we move to 2022. Question four, where do you book the revenue for clearing and settlement services that we offer for a third party? Those will essentially be a part of the non-recurring income that we report. That is part of the stockbroking fees that we earn. You should see that under the non-recurring income revenue that we report. When will the full-year loss from BFC be booked? We expect that to be through the nine months, second to fourth Q of 2022. The four million that we're referring to, we're looking at the P&L impact, not the balance sheet. The next question from Deborah. Just wanted to check on your global fintech ambition. 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 say global fintech opportunity, the key point we wanted to deliver in our presentation slides was more about the overall business model. More on the overall business model. We're going to operate as a wealth management platform on a global basis, wealth management platform attracting client assets and client cash on a global basis for clients from different country. 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 that. The U.K. bank acquisition is something that will be important, but in our 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 would want our growth to be driven primarily by organic growth. Yeah. I think Krishna is on the Yes. Krishna, I think just now he has clarified that he was referring to the client's bank accounts, which is something that we show in the balance sheet position. That is essentially referring to the client money that is in transit for the different trade settlement. That could vary. There's not necessarily any that AUA goes by a certain quantum, then this number has to follow suit. It's just a trade settlement, a transition kind of a number for clients' bank account. We put that in the trust. Yeah. The number that you see, so the client bank account number. Yeah, there are two components to the number. One component is the money that is in the client's trust account or the terminology we use at FSM is cash account, where they leave their money there with a view to investing in stocks, et cetera, at some point. Then there's another part of it, which is really more transition money. Money moving in and out as a client buys and sells. These are transition money, basically a subscription and redemption account as well. Those numbers are all captured under this part. The transition money, the subscription redemption money, are very volatile because it depends on transaction volume. It moves in and out. Yeah. The number that you're looking at is actually a combination of the two. Next, we have a question from Yong Hong. Hi, Yong Hong. You may unmute yourself to ask the question. Hi, everyone. Thanks for the opportunity. I just want to clarify on the Hong Kong ePension project. I think you have provided some update that the platform could be live in May 2023 based on current timeline. Could I clarify, that is when you start migrating the trustees into the new platform, which will take 1 to 2 years? Secondly, can I clarify if your Hong Kong guidance take these migration fees into account? Basically, I am just getting some color if the fee contribution would normalize after the initial 1 to 2 years, to a more sustainable basis through the remaining 5 years. That is my first question. The migration will happen over a 2-year period, and because of scale of the project, it will be done trustee by trustee. We should start to see the initial part of it in 2023, and then ending or completing the migration by 2025. As far as the revenue implication for iFAST is concerned, we should start to see that contribution starting 2023, then growing in 2024, growing further in 2025. Subsequently, there would still be likely some growth, but at a smaller pace. That is the way to look at it. The actual quantum is something that we would like to give an update. The actual quantum for Hong Kong business as a whole, something that we would like to be able to update in the second half of this year. Got it. Thank you. Also maybe just to clarify on the tax rate. I think the Singapore operation has benefited from some incentives scheme. How should we think about the tax rate on an ongoing basis, at least through 2025? Singapore, we have some tax benefit that bring the rate down to, I think, 13.5%, but not for 100% of the income. For part of it, we have some concessionary tax rate. On a group basis, you should be expecting that it will be on the profitable country, it should be in the teens, as we move on. Of course, when you look at it on a 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 if I take Singapore, Hong Kong, Malaysia, then we should be looking at maybe mid to high teens in terms of tax rate. Got it. Thank you. Also, just to follow up on your operations in China, I think it was mentioned that there could be some direct application or acquisition of license. Could 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 products and services in China, so that could be through application of maybe new licenses or perhaps acquisition of certain businesses. But we haven't gone into the details. Yeah. At this point, we don't have anything imminent, so I'd rather not discuss too much in detail at this point in time. But it's not imminent, yeah. Okay. Thank you. Maybe just two more small minor questions. So I've noticed that the associate loss tend to be the widest in 4Q. I think that was true in 4Q 2020 and 4Q 2021. Just out of curiosity, is there anything that I'm missing out? Yeah. I think it is one of the FA firms, they tend to book their bonuses in the fourth quarter, which then causes them to report a loss. At a group level, then we end up consolidating that with I mean, not consolidating, but equity account the numbers, so then the 4Q number end up looking not so good. Yeah, it is because at the FA company level, they provide for the bonuses in the fourth quarter. Okay, got it. Thank you. Also just final question on, there was this line called uncompleted contracts on your current asset. I think there was quite a big decline. Could I just understand what is driving this, and if there is any implication on the profitability of the group? This will be my last question. Thank you.