Earnings Call: Q4 2019

Feb 20, 2020

Good afternoon, everybody. Thank you for coming over to our office for our full year results briefing, to all of you here, as well as to those who have joined us via Zoom conference. My name is Jean Paul. I am with the corporate comms team, and I will be presenting the key summary portion of today's presentation. I will then next invite David, our CFO, and Chung Chun, our CEO, to present the remaining portions of today's presentation. Starting off with the key summary. The group started 2019 on a weak footing, but we saw significant progress as the year went on last year. As at 31st December 2019, our AUA grew 24.2% year-on-year to a record high of SGD 10 billion. We noticed that the record AUAs were achieved in our key markets of Singapore, Hong Kong, and Malaysia, as we continue to benefit from the continuous efforts that we have been putting in improving the range and depth of our products and services. In terms of net revenue, we continue to see growth as well. It hit a record high of SGD 16.96 million in Q4 last year. For our net profit, it increased 14.4% year-on-year, to SGD 3 million in Q4. Although for the full year of 2019, our net profit was down 12.8% year-on-year, essentially due to the poor first half that we saw in 2019. If we look at the last three years, the group's AUA has increased by about 64%, at SGD 6.1 billion three years ago, to SGD 10 billion as at end of last year. In terms of net revenue as well, over the last three years, we have seen very good growth. Our net revenue grew by about 60%, from SGD 40.69 million in 2016 to SGD 65.2 million in 2019. What we do note as well is that the growth trend for net profit has, however, not been as obvious in the last few years, and that has resulted from the fact that we have been prioritizing our efforts to further enhance and improve the range of products and services, essentially our platform capabilities. While the group is expected to continue to improve, and work on upgrading our regional platform capabilities further, including laying the initial foundation for a digital virtual bank, we expect that over the next 12 months, the pace at which our operating expenses has been growing will start to moderate. This is because a large part of the key infrastructure that is required for an integrated wealth management platform is already in place. We have mentioned this previously in the last quarterly results, where we talked about OpEx a little bit. We are estimating that OpEx will increase by about 6.8%-9.5% year-on-year, and that is approximately about SGD 59.9 million to SGD 61.4 million for this year, 2020. The estimated percentage increase will be significantly lower if you compare it to the double-digit percentage increases in OpEx that we have seen in the last few years. Of course, this does not take into account the application for the digital banking license in Singapore, which may affect expenses in the second half of this year if the application is successful. Overall, we continue to believe that growth opportunities in Asia's wealth management industry remain very substantial, and we are well-positioned to benefit from these opportunities in the medium to long term. Continuing growth in the group's AUA and net revenue, combined with this moderation in expenses that we just talked about, will allow the group to better see the benefits of our scalable business model. We also touch on this point, which is the outbreak of the COVID-19 has caused substantial concerns of potential negative impact on the overall business environment. As at 19 Feb, the group has not seen any substantial adverse impact on our overall business. The AUA of the group as at 19 Feb has remained above the levels that we have seen at the end of last year, which is SGD 10 billion. For the final dividend for full year 2019, the directors are proposing a dividend per share of SGD 0.9 cents per ordinary share, which is subject to shareholders' approval at our AGM on 23rd April. The digital bank consortium led by iFAST Corp, led by ourselves, we submitted an application for a digital wholesale bank license in Singapore. The iFAST-led digital bank license, we shared a bit about this at the start of this year. We aim to better serve, firstly, the global mass affluent market by tapping on Singapore's growing role as a leading wealth management center. Secondly, we also believe there is a big opportunity in Singapore to become the bank of choice for SMEs, particularly for loans. One more point here, it is on the new risk-based approach to quarterly reporting that SGX has announced at the start of this month. Although iFAST Corp is not among the companies required to do quarterly reporting, we have decided to continue leading the way in maintaining high standards of corporate governance through the continuation of quarterly reporting. We believe transparency is key in giving investors the information they need to know more about the company, our goals, and vision in a clear and timely manner. We will continue to do the quarterly reporting. Here we have our two charts. Firstly, the AUA chart, which we shared with investors at the start of this year. A record high of SGD 10 billion in terms of AUA as at 31st December, broken down by our B2B and B2C business units. Here we also wanted to share our usual charts and updates on the net sales and subscription excluding switching. For net sales, you will see in the notes that we gave the number for each quarter. The second half 2019 net sales, as well as the second half 2019 subscription excluding switching numbers, are much higher than the first half of 2019. We saw that improvement in the second half last year. I will next invite David to run through the financial results. Well, good afternoon, ladies and gentlemen. I am going to present the financial results for Q4 2019 and full year 2019. As usual, we will present our group results excluding and including China operations. Slide 11 is the Q4 2019 versus Q4 2019 financial results excluding China operations. Our gross revenue increased by close to 21%, about SGD 33.6 million. Net revenue increased by about 14% to about SGD 16.8 million. We actually have a quite good second half of this year, and the market sentiment in the second half and Q4 2019 is more positive than the first half of 2019. This also contributes a growth of our AUA, and there is also some increase in the subscription of different kind of investment products that we distribute. All this contributes to the growth of the gross revenue and net revenue for Q2 2019 compared to Q2 2018. Our other income is about SGD 120,000, almost about 96% growth compared with 2018. The reason is mainly due to the increase in the investment income during Q4 2019 this year. Some core expenses, because we actually keep on enhancing our platform capabilities, so we spend quite a bit on to develop our platform and also to make it more enhancing to increase our capability. Anyway, the expenses grew about 9.5%, about SGD 12.8 million. The net finance income only about SGD 70,000 for Q4 2019. The reason is because actually due to the change of the financial reporting standard 16 leases, so we need to book in the interest expenses of the lease liability due to the office lease. So there is a drop of the financial income to about SGD 70,000. Our share of results associated, which is about SGD 110,000 for Q4 2019. The reason was mainly because actually in the Q4 2018, we did book a one-off gain from one of our associate company. As a result, there is a drop in the share of results associated in Q4 2019. The PBT, there is a growth of about 17.5%, about SGD 4.7 million. PAT grew about 13%, now SGD 4.24 million. Net profit after tax owners of company is also SGD 4.24 million. EPS 1.5 cents. These are the results of Q4 2019 excluding our China operations. We move on to the next slide, page number 12. If including China, our gross revenue increased by close to 21%, to SGD 33.8 million. Net revenue increased by 14% to close to SGD 70 million. Other income is still the same. Expenses, SGD 14.2 million, about a 9.3% increase. Net finance income, about SGD 40,000. No change for share of results associated. PBT for the group, grew about close to 21% to SGD 3.4 million. PAT, SGD 2.96 million, representing 15% growth. After excluding the non-controlling interest, our Q4 2019 net profit is SGD 3 million, about 14% growth. EPS, 1.12 cents versus 0.90 cents. Dividend per share is we propose SGD 0.09 for the final dividend subject to approval in the coming AGM. Next will be the full-year financial results excluding China. For full-year, our gross revenue is about close to SGD 125 million, about 4% growth, and our net revenue increased by about close to 10%, about SGD 64.6 million. You refer the result announcement temp date, but I think there is a table that shows the gross revenue and the net revenue for first half and second half of 2019. You notice that actually we start with a weak first half, but actually, I think the market sentiment in the second half becomes more positive. So all this contribute to the growth of the full-year gross revenue and the net revenue. Other income, a growth of about 25% to about SGD 2 million. As mentioned earlier, the reason is mainly due to the growth of our investment income. Expenses, a 14% growth, about SGD 15.4 million. We record a small net finance cost for the full year 2019 due to two reasons. Firstly, in December last year, because we want to apply for the virtual bank license in Hong Kong, so we drew down a bank loan in December 2018, and we have fully repaid the bank loan in December 2019. As a result, we need to book in the bank interest expenses for this bank loan. Secondly, as I mentioned earlier, due to the change of financial reporting standard, for keeping accounting purpose, we need to book in the interest expense from the lease liability. Actually, it's our office leases. Let's move on. For the share of results associated, we have a small loss of SGD 50,000 versus a gain of SGD 120,000 for last year. The reason, as I mentioned earlier, because there was a one-off gain from one of our associates last year. So the PBT is a drop of 6% to about SGD 16.1 million. PAT, a drop of 7.6% to SGD 14.3 million. Net profit attribute on the sort of company excluding China, the same, SGD 14.3 million. EPS excluding China is 5.35 cents. Slide number 14 is the full-year result including the China operation. Gross revenue, SGD 135 million. Net revenue, SGD 65.2 million. Other income, no change, SGD 2 million. Expenses, about SGD 56 million, about 12.6% growth. A small net finance cost, about SGD 60,000. No change for the share results associate. PBT, about SGD 11.1 million, about 10% decrease. PAT, SGD 9.3 million, about 12.9% decrease. After excluding the non-control interest, our net profit attribute to owners of the company is SGD 9.5 million, about 12.8% decrease. EPS for full year is 3.55 cents versus 4.1 cents in 2019. Dividend per share for full year is 3.15 cents. Slide 15 is just the five-year P&L excluding China. I think most of the figures are presented in the earlier slides, but I just want to highlight at the bottom. Our operating cash flow excluding China is SGD 23.54 million. Slide 16 is the five-year P&L. I just want to highlight the two figures at the bottom. Operating cash flow including China is about SGD 19.3 million. Dividend per share is 3.15 cents, same as last year. This chart will show the PBT margin based on the net revenue. Left-hand side, the chart is excluding China operation. At 2019, our PBT margin excluding China operation is 24.95%, excluding China operation. If we include China operation, which is at the right-hand side, is 17%. Slide 18 is some financial indicator. For financial year 2019, our net cash position that includes the cash and cash equivalent and the investment in financial assets is about SGD 14.15 million. Operating cash flow, SGD 19.3 million. Operating cash flow excluding China is SGD 23.54 million. We spent about SGD 11.9 million for capital expenditure for 2019. Net current asset is SGD 49.6 million and shareholders' equity is SGD 90.06 million. Slide Page number 19 is just to show you the cash and cash equivalent and minus the bank note. Our cash and cash equivalent is about SGD 24.6 million. Other investment, SGD 19.1 million. The total cash and cash equivalent and other investment is about 43.95 million. We still have a small bank loan, about SGD 3 million. The net cash position after netting off the bank loan is 14.15 million. The gross debt-to-equity ratio is 4.23%, and we are still in a net cash position. This chart will show the operating cash flow for the last five years, excluding China and including China. In 2019, excluding China, the blue color bar is 23.54 million. Including China, the orange color bar is 19.3 million. These are the standing of the capital expenditure for the last since 201 until 2019. In 2019, we spent about 11.9 million, and our forecast for 2020, there may be a slight decrease to about 10.61 million. Please note that our 2020 forecast does not take into consideration of the successful application of digital bank license in Singapore. Slide page number 22 is the number of issued shares excluding treasury shares as at end of 2018, 2019. As at end of 2019, our total number of issued shares excluding treasury shares is 216.73 million. The next two pages is just the consolidated balance sheet. Our total non-current assets as at end of 2019 is about 52.46 million, while in 2018 it was 30.3 million. I think obviously the whole obvious item will be the right-of-use asset, 14.39 million. This is due to the change of financial reporting standard that we need to book in all the operating office leases as a right-of-use asset. Other than that, also due to some increase in the plant and equipment and intangible assets. Also, there's some increase in associate mainly due to the additional investment in their business during 2019. Our total current asset is about 104.7 million as at end of 2019, compared with 112.65 million as at end of 2018. The cash and cash equivalent, you notice there's some significant decrease was mainly because, as I mentioned earlier, at the end of last year, we drew down the bank loan about 37 million. On the other hand, there's also some decrease in the other investment, mainly due to additional redemption during 2019. Uncompleted contract buyers increase was mainly due to just the timing issue. Our trust account at the end of 2019 is close to 411 million versus 330 million in 2018. This one is the equity and the liability. Our shareholder equity is about 90.06 million at the end of 2019, versus 55.5 million at the end of 2018. After including non-controlling interest, total equity is about 89.6 million, versus 65.35 million. Total long current liability increased quite significantly mainly because of the long-term portion of the lease liability, which as we obviously said. For the current liability, at the end of 2019, about 54.9 million versus, 71 million at the end of 2018. Obviously, it's mainly due to the reduction of the repayment of the bank loan at December 2019. On the other hand, there are some increase in uncompleted contracts – sellers, I think it's mainly due to the timing issue. Total liability is 67.5 million at the end of 2019 versus 32.6 million at the end of 2018. Lastly, will be the slide page 25, which is the proposed dividend for financial year 2019. The final dividend per share is SGD 4.9 cents. XD day will be May 4. Record date and have replay of May at 5:00 P.M. Payment date is May 19, 2020. The proposed final dividend per share is the same as 2018, SGD 4.9 cents, subject to shareholder approval at upcoming AGM on April 24, 2019. Total dividend for 2019 is SGD 3.15 cents, which is same as 2018. Lastly, something about the continuation of the quarterly reporting. You all know that SGX released a new risk-based approach to quarterly reporting from February 12, 2020. Under this, only companies with high risk are required to perform the quarterly reporting. Although we are not among the list of companies selected by SGX, we decided to carry on the quarterly reporting in full format. The reason is because we strongly believe that transparency is the key to give the investor the information they need to know about the company, the goals, the vision, and it needs to be in a clear and timely manner. We decided to continue leading the way to maintain the high standard corporate governance through the continuation to do the quarterly reporting. Lastly, in November 2019, iFAST Corp was selected to be one of the 36 listed companies to be included at 2019 SGX Fast Track program. This program aims to affirm listed issuers that have been properly recognized for high corporate governance standards and have maintained a good compliance track record. It serves a recognition of our commitment towards building a strong compliance culture and continuous effort in adopting the best practice to achieve sustainable growth in the long term. That's all for me. Thank you. I'll carry on. I'll move on to the section on goals in 2020, the current year. I think firstly, I'd like to start off by saying that, over the last few years, we have actually been working hard on ensuring that, as a platform we are as comprehensive as possible. We keep upgrading our capability. Certainly, that have actually brought us positive effect and, as a result, that we have continued to grow. We believe that as a result of this effort as well, I think in the years ahead, we will be able to continue to grow. In terms of the goal this year, of course, is to scale up further in terms of the business that we have in the various market that we are in. We feel that, given all the things that we have done, I think the pace at which we can grow should be able to improve or accelerate going forward. Certainly, if you talk about the overall opportunity in the markets we're in Asia, we know that it's a very big market. I think we're just at the tip of iceberg in terms of where we are today. The other point that we'd like to mention for the current year is with regard to the OpEx as well as the profit margin. I think you actually have noted that over the last five years since we got listed, we have actually been growing our AUA. We have been growing our net revenue. However, in terms of the growth in profitability, it hasn't been as clear. The main reason is that we have taken the view in the last few years that it is important for us to ensure that as a platform we are as competitive as we need to be. So the costs have gone up because we continue to keep on increasing the overall investment into our overall platform. Certainly, that investment in terms of upgrading our platform will continue. But we also feel that we have gotten to a stage whereby a large part of the key infrastructure that's required for platform are already in place. With that, while continued investment will continue, I think the pace at which we grow our expenses will start to moderate. So for this year, I think this is the first time we're doing that, but we essentially pinned down some specific numbers in terms of estimate, as far as OpEx are concerned. We're estimating that the OpEx for the year will range between SGD 59.9 million to SGD 61.4 million. This to make it easier for investors and analysts to do their projection. I think we can't really give any projection as far as revenue is concerned because a number of things are not in our control. But expenses, to a large extent, is within our control. So we're basically then giving some kind of guidance in terms of where we expect to be. Clearly, we aim to be able to grow revenue faster than expenses, and because of that, we are aiming to be able to increase our profit margin as well. I think the last few years, we actually find that profit margin hasn't been optimal. Hasn't been optimal considering the business model that we have, because our business model is one whereby it's actually meant to be scalable. As we continue to grow, we ought to be able to find the benefit of the improving scale and improving margin, et cetera. But that hasn't been obvious in the last few years. Certainly going forward, we hope that that become more obvious. But having said that, I think the expenses that we have estimated for the year does not take into account a potential successful application for a digital banking license. If that is indeed successful, then certainly it's good news, but it may also mean that we have to start increasing some expenses in the second half of the year. Which brings me to this topic about the application that we're putting. So we have put in an application for the digital wholesale bank license in Singapore at the end of last year. MAS reported that there were 14 applicants in this category, so we are one of them. Interesting to note that majority of them seems to be a foreign company and overwhelmingly a Chinese company, it seems. We like to think that we do have a decent chance because I think we are in our view, one of the most successful local fintech company, if not the most successful. We noted in earlier release that, yeah, we have generated over SGD 100 million in cumulative profit over the years in Singapore itself. I do not think anybody else has done that in the fintech space. In this application, we went in as a consortium, but we are the one leading it. We will be taking a 65% stake in the proposed digital bank. I suppose at this point in time, I will not be able to go fully into the business model and so on because firstly, we need to see whether we are successful. But I would just like to mention a couple of key points. I think the key point I would like to mention really is that when it comes to banking, I think there are really two main component to be looking at it. It is taking in deposits and then lending out money. We note that most of the applicant that put in the application talk about the lending side of it. But our view has always been that banking is as much about, or perhaps even more about the deposit side of the business. How do you ensure that you can take in deposits at a competitive cost? How do we ensure that without paying an extremely high interest rate? The investors would actually be willing to put deposits with us. I think that is actually the important part. So in our case, that part of it is really about the wealth management business. And we are looking beyond just Singapore. We are looking in terms of the possibility of building a global bank. And we believe that it is actually an exciting opportunity and we are in a very good position to be able to tap into that opportunity. Singapore has on page 31. Singapore has established itself as a wealth management center for the region and increasingly for the world. But I would say that so far that segment of business is largely in the private banking space. I think in the digital age, the opportunity is certainly far bigger than that, and the opportunity we are eyeing is really in what we call the mass affluent market. For foreigners who are happy to put some money, open a bank account in Singapore, put some money in Singapore, I think that is actually a big market that is not properly tapped into. And we see ourself as being in a very good position to tap to that opportunity. Of course, with the deposit coming in at a sufficiently competitive cost, then the lending side of business can really be done well, because you need to be able to ensure that you lend to good quality customers. And good quality customers need to want to know that, okay, we are not asking for overly high interest rates. So that is why it is interrelated. But for this segment then we feel that the focus for us will really be lending to the SMEs as well as ourself as a wealth management platform. Certainly, that is one segment of business that we have not properly developed. If we are successful, if we are a bank, then we can actually develop that much better. That is in terms of the segment goals for 2021. I will move on to the next segment, the performance trend, Slides 32, 33. This is a chart that you see typically, the AUA breakdown. Singapore is still about 65% of our AUA. In terms of products, unit trust is still the core, 82%, but I think the other segments are actually growing at a faster pace. Slide 34 shows the chart on the net revenue that we have, how that has grown over the years since 2004. We have generally been growing, and the recurring income that we have is about 80% of our overall net revenue. Margin, if you look at the margin in terms of net revenue as a proportion of the AUA, then that has remained quite stable over the last few years. These are additional numbers. I will not run fully in detail, but if you look at slide 37, that shows the different markets. You can see that Singapore, still the biggest contributor, SGD 32 million net revenue. Then we have Hong Kong, Malaysia, all growing. China has not had a good year last year. But I think in terms of the progress we are making in the last couple of quarters, we certainly are expecting that 2020, we will see a lot more progress. These are additional statistics for you to refer to further. In terms of profitability, you will notice that Singapore, actually, for the year as a whole, did see a decline in profitability, even though our business actually grew and AUA continued to grow. The key reason is really that costs in Singapore went up, and that is also partly because Singapore takes up quite a bit of the overall costs that the group put in terms of developing new capability, new investments, and so on. Hong Kong, Malaysia continue to grow. China is still making losses. This chart on Slide 42 and 43 as well actually shows the transaction volume for the bonds business that we have. That continues to be an area that we believe to have a lot of potential, and we are still in the initial days of tapping into this opportunity. I have thought about it sometime in the past, but I think as we move on, it is an area that I will come back to in the quarters ahead because we think that a lot of things can happen here. The other slides will actually contain some more detailed information about the individual market. I will not run through in detail. I would like to note that in Singapore, we have just been informed by Singapore Exchange that we won the award of being the fastest growing trading member for SGX for the second year running. We are still one of the smallest broking member in Singapore because we have been new in this space, but certainly we are making progress. We believe we can continue to make significant progress going forward. I will stop at this stage, and I will be happy to take any question that anybody may have. The Zoom is a first time we are using this for the purpose of an investor briefing. I do hope that you all can hear us clearly and it works well. If it doesn't, then please give us feedback, and then we will see how to improve it in the future sessions. Does anybody have any question? People on the conference, if they want to ask, how do they do that? They have to unmute their microphones, and then they will be able to ask a question, and we will be able to hear them. So those who are on the Zoom, if you need to ask a question, just unmute your microphone, and you can speak. Before session, I got two question from one of the shareholder about our China business, about the PFM. The private fund management license that we have been working on, and the other one is on the joint venture that we have announced, Raffles Family Office. Asking what is the progress on that. That is actually still being sorted out in terms of the different parts of the paperwork and the requirements to get a license and set up our company fully in place. It has not actually started contributing to us as yet so far. But we expect that to start to do so sometime this year. Who is that with? Who is the joint venture? We announced a few months ago that we have a joint venture with Raffles Family Office. It's actually an EAM, sort of based more in Hong Kong. Because they are quite well-established in Hong Kong, they have a lot of clients who are from China. The idea really is to be able to tap into the client base that they already have, who are Chinese, and who are being advised by them in Hong Kong and Singapore. But these clients generally will have a lot more wealth onshore in China, and that's a large part of the thinking. Because we have our platform in China, and we form a joint venture where we take a minority stake. We hope that this business can be interesting going forward. Are there any questions? This is coming through from someone online. Can I ask, if you get the digital bank license, how are you funding that? Our proposed stake is 65%. If we are successful, we intend to capitalize that at about SGD 125 million at the initial stage. 35% will come from our Chinese partner. We will be looking at coming up with 65%, which will be about SGD 80 million. We are expecting that to fund that, it'll be a combination of some existing resources that we already have, some bank borrowing, and some equity raising, likely to be at iFAST Corporation level as well. If we are successful in getting a license, then we think that there's likely to be a need for us to raise some capital at iFAST Corporation level. But I think if we're successful in getting the license, I think that is certainly a very exciting opportunity. We don't foresee any issue in being able to raise that successfully. Would you be thinking sort of SGD 30 million for the equity slice? We've been talking about SGD 80 million in three different methods, so you can kind of bank borrowing and equity. Around that size? Yeah, the final amount remains to be seen, but I suppose something of the order of SGD 30 million, SGD 40 million could be sufficient. What's the eventual number, I think at that point in time will decide. What's your relationship with the Chinese partners that you're working with? Not exactly. I think this thing arose because they were interested in applying for the banking license as a minority shareholder, and they were looking around for a potential partner, and iFAST was recommended as a possible partner. Then we met, had a discussion, and we find that there's a good match in terms of the direction and vision. That's why we decided that we should partner together. So the partner that we have, Yillion Group, they run a digital bank in China, and they know for a fact that there's a tremendous demand from a lot of the Chinese who actually open bank accounts in Singapore. Even based on that official guideline that is in place by the Chinese central government, the ability to build this part of the business, is actually for sure very tremendous. What's the ROE, the target ROE on this digital bank you hope to break even? We are actually internally projecting that after four, five years, I think we can hit 20% in terms of ROE. I know that most banks are doing well below that. I feel it's a function of the overall business model. Cost is part of it, but I think it goes beyond cost. The other part really is the business model. Internally, we talk about this concept of platform banking. Traditionally, when banks build their bank, build their business, they take deposits entirely on your balance sheet. Whatever deposits you take is on your balance sheet, and that actually requires a certain capital ratio, and then you lend that out. That ability to actually generate a good ROE then becomes somewhat limited by that. But if you look at what we have been doing as a platform and what we potentially can do as a bank, or perhaps what we are already doing with the client cash today, we're actually having a business model whereby we're essentially earning fee income on the client cash. If you look at the trust account that we have, I think we talk about 410 million that David was mentioning. I think over 300 million of that actually are in what you call the cash account of the client. These are actually client assets that we take, we put it in the bank. All right? What we essentially did was to take that and spread that among a number of banks, well-capitalized banks. Then, we actually give a client a better interest rate than what the banks are able to do for savings account, and yet we keep a decent margin for ourselves. Essentially, we're handling cash the way the banks actually are handling, but we don't have to entirely use our balance sheet for all the cash. All right. Basically, the trust account that we are doing today, in terms of how we manage that, how we earn the fee income, some of the concepts will be applied to how we run the business if we're successful in becoming a bank. We call this sort of platform banking. All right? You talk about, you've got 300 million in the. You have 410 in the trust account, 300 in that money market side of things. the cash, that cash you manage. What would you see that growing to? Let's say that you take that 5-year outlook, you have 120 million capitalization in this bank. Where do you see that scale of business growing to? Hmm. You are talking about the platform? Or you are talking about- Once you go to. As you said, if you get digital banking licenses to grow that type of service, fee income, using those kinds of structures. Yeah. In your projections, we are getting to 20% ROE. Yeah. How important is that in the Uh- In the size you're doing that? So, in terms of the source of deposit, we expect that part of it will come from the iFAST ecosystem that's already there in terms of, on the platform side. Then part of it will be directly from clients who open account. But if you think in terms of 5 years, I would imagine a reasonable number for the bank, the digital bank, 5 years out, to be SGD 10 billion in deposit. Of which we expect that a substantial portion, possibly half or more of that can come in the form of this platform banking concept, which means this is essentially fee income. And the portion that we actually use our balance sheet on, that will actually be on potentially even a minority part of it. That's how we can actually ensure that we have a good level of fee income and have a high enough capital adequacy ratio and high enough ROE. I think that's a way we can do it. So we are a platform. So the concept of being a platform for unit trusts is what we start off with. Of course, many years ago, the banks used to sell mainly their own unit trusts, but they evolved to sell third-party product. So distributors like us, we came in, applied that to unit trusts. Then as we moved on, we applied that to more product, all the different investment product. If you think of it, why can't we apply that to cash? Especially cash in different currency, USD, RMB, EUR, et cetera. We can take the money, put in banks with, they are rated double A, and the clients feel very safe. For our balance sheet, it's an asset-light type of business model. That is actually a large part of the thinking. You mentioned- Yes You mentioned that retail license also, but in the end, you take the wholesale. What is the thing that made you succeed? Hmm. Yeah. I suppose the primary thing really is the capital requirement because, as we studied further, then we actually realized that in terms of the opportunity that we're truly eyeing, which is really to bring banking onto the international level, and being able to give better rates, better seamless transfer across borders. That can actually be achieved via just the wholesale bank license. Wholesale bank license, by the way, is what most of private banks are using as a banking license. You're talking about the difference between SGD 100 million of capital and SGD 1.5 billion eventually for the full license. We decided that we should then focus on applying for the wholesale banking license, because I think we can achieve what we need to with a much lower capital requirement. You have the Yeah. Yeah. You said that you expect positive progress in China this year. Not in terms of, you know, making money yet, but in terms of. Yeah. Growing the volume further, but we expect that there will be continued losses this year in terms of China. At a similar level? Yeah. In the overall context of the size of the overall group business and so on, you could say yeah, the comparable part type of level. Where do you see the progress coming? The first progress, of course, is the volume. Is the volume, is the AUA, and is about making sure that we get to a stage where we achieve what you call a breakthrough. Breakthrough meaning we know that each month the volume will keep coming in. I think we are there for Singapore, Hong Kong, Malaysia. I think we are at a stage where even with the coronavirus situation, we actually find it, actually we are in quite a comfortable situation so far, as far as the business is concerned, because the inflow continue to come in. So that is what I call the breakthrough. China, of course, we are making some progress, but we are still at a level where we have to work quite hard to push it to a more meaningful level. So progress in 2020 to us will mean a more meaningful increase in overall volume. But in terms of profitability, we expect that it is not there yet for 2020. Are there any further questions? Yes. Your AUA reached a high of SGD 10 billion this quarter. Sort of mid last year, I think the Hong Kong, we saw quite a bit of outflows coming out of Hong Kong and just through the business in general. Your third quarter numbers really reflect that. I think in terms of Hong Kong AUA, it looks like it is up. Just wanted to get your color on that. How are you seeing volumes of AUA coming, especially from Hong Kong this quarter? In terms of your breakdown, in terms of the split between currencies, it looks like most of it came from Singapore this quarter. How has it been? How do you see it going forward? I know the S-REIT kind of moving between, but you also have the virus now coming in. Color on your thoughts on that. Well, if I take the Hong Kong market, Hong Kong volume on its own, it actually has continued to grow through the protest period. We do see the requests coming from our Hong Kong B2B partner to be able to bring some money to Singapore, and we have facilitated some of that. But in terms of actual flow, it's not a big number as far as we are concerned, but it is an increasing level of interest. But within the Hong Kong business itself, I think you actually find that, yeah, we're actually currently at growth. So it hasn't actually translated into any big impact on the overall number, other than the market situation and how that impact the overall short-term number. But otherwise, you'll find that Hong Kong continue to grow, just as Singapore and Malaysia has continued to grow. So that is so far what we have seen. Yes. You talked about the OpEx coming off the substantial sales this year. You've been running long enough now to get a sense of the natural OpEx cycle in what you do. With peak lifts and drops in your operating expenses. So how long do you view this harvesting part of the cycle you expect? Is this a sort of a 2- to 3-year period of lower OpEx, or do you really think this goes on forever? When would we expect to see another lift in OpEx? Yeah. I wouldn't call it a cycle, because it's not exactly a cycle. The increase came largely as a result of the fact that we went from a platform that does unit trusts to one that actually does a whole range of products, including stock broking, bonds, et cetera. The other part is getting our overall IT capability up so that we can tackle even bigger projects. So I see it is not really a cycle. So it is more an increase that we had to go through in a bigger way in the past few years. But where we are today, I think as far as the current platform business is concerned, excluding the banking, I think we have seen the biggest jump. I think the increase from here will moderate because to go from being an entity that does unit trusts without any real-time pricing, but start doing real-time pricing or stockbroking with ETF, et cetera, that requires some additional investment, quite significantly and so on. So from here, the platform side of it, I would say it doesn't have to increase very much. Any potential more significant increase will come from something like the bank, if we're successful. That's the way to see it. If you were successful with OpEx side, if you were to put in more infrastructure in the power of the bank, I feel like OpEx coming down, your projection for the year is how much do you think it will. This isn't in your initial number of, you know, when, investing how much. You're saying for the banking side? Yeah. Yeah. At this point in time, we are not ready to give some actual tangible number as far as the banking side is concerned. Yeah. Firstly, we would like to see whether we're successful. But what we can say is that, we expect to be spending less than what most other digital banks do. That's typically what we expect because, I find that when most of them actually went into the business, then there's a big ramp-up and so on. For us, we have our capability in-house. We will be building in-house. So we don't expect a massive amount. But certainly there will be an additional investment. I think we have a question from. Yes the end. I will mute here. Okay. Hi. Hello. Hi. It is Yong from Media Credit 12. Can I continue? Hi. Yeah. Hi. Just follow on Michael's questions regarding the virtual banking license. Could you share with us how much is your estimated certain cost for the whole process, including cost for funding, hiring, everything? Yeah. We certainly have our estimates internally, because we are putting a very detailed application to MAS. I think, hopefully in the next quarter, or quarter after, as we make further progress, then we can look at more of those details further. Right. Okay. My second question is about, because when you look at the PBT by market, I noticed you said some of the costs are moving to Singapore market is for other markets. If we are fairly allocating all of these expenses to other markets, will Malaysia and Hong Kong still book it positively with our PBT? Sorry, I missed the last part. Malaysia and Hong Kong, what? I missed your question. I mean, when we look at PBT for market by market, right? We see Malaysia and Hong Kong report consistently positive PBT, but Singapore carries a lot of cost for other markets as well. If I fairly allocated all these markets according expenses at the announces to all markets, I mean, if I choose Malaysia and Hong Kong, do they register a positive number for PBT? Would they register positive growth as far as profit before tax is concerned Yes. Yes. I think I would say that I don't discount that in some quarter it's possible to see that some quarter may not be positive growth for certain, for whether it's Hong Kong or markets if it takes a bigger share of the overall cost. I think that could very well be the case. But I think by and large, I would say that the trend is certainly one whereby they are seeing real growth in terms of profitability. If you take a whole year basis, alright? Whole year basis over the last one year, two years, then certainly they are seeing real growth in terms of overall profitability. Okay. Okay. That should be all for me. Thank you. That is all. Yeah, okay. That is all. Yes. Yes. Can I get a bit of an update on some of the smaller markets? In the past, you spoke about EPF in Malaysia. Just to know whether that's moving ahead and what it's worth to you, and what you think it'll be worth, and then also your recent investment, increasing your investment into India, if you could give an update on that. Yeah. If you take Malaysia, last year in terms of revenue and profitability, we grew. I would say that Malaysia, for last year, was in a situation whereby, the growth in the core investment business was a bit slower than the growth rate of the previous 2 years because the Malaysian market as a whole actually did quite poorly. I think it's one of the worst performer as far as stock market is concerned around the region for 2019. That actually moderated the growth of our overall AUM in Malaysia and sales volume in Malaysia. But last year we had the benefit of the fintech projects coming in that actually brought us some IT services revenue. That actually ensured that overall Malaysia actually we saw a pretty decent growth rate. Going to 2020, we are actually expecting that the fintech IT services segment of the business will have a good year this year as well because there are certain additional project that we have actually secured as well. I think we start off the EPF project, where we did that. That actually led us to a situation whereby the other fund houses were keen to start to engage us to build out a system. After all, we are the one that link them to EPF. So that brought additional project from the fund houses. I think for this year, we expect to see more of that from the fund houses. At the same time, I think there are also one big project that we sort of have secured recently that involve a bit of the cash management type of services, linking that to some payment player and linking that to the money market fund. It is basically a project to make that seamless. That is actually quite a sizable movement as well. Because of that, we actually expect that IT services revenue in Malaysia will do well this year, will have a decent growth this year. So that is a payment operator, essentially putting their float into money market, and you receive some yield doing that. Something like that. But for this particular project, our role is more of an IT player. Okay. Yeah. You are not making a fee of the float, you are making purely a fee- For this project, not exactly. For this project, I think we are benefiting more as an IT provider. We do have our own sort of project in different part of the business that sort of try to make the cash management services part seamless. That is an opportunity that we see as being interesting in the years ahead. But for this project that we have secured, we are IT player. India? India, we have been gradually increasing our stake in the business. Our effective stake currently is about 36% in India. India is still at a stage where is still not profitable yet, still making some losses to the tune of, as an overall business, probably in the region of SGD 4.1 million. So our share of that losses will be in the hundreds of thousands. Seeing progress, but I suppose it has been slow in the last one year, certainly expecting that we will grow further. But just waiting for the point where we hit the profitability. To get this up to 36%, this is you buying out existing shareholders? These are new money that has gone in. New capital. New capital that has gone into it. To pay for these Q4. Or rather, yeah, the latest one is essentially new capital going into the India business. Yeah. In the past, there have been times where we bought some existing shares, but the latest one is new capital going to the business. We have another question from Ryan. Ryan, hello? Hi, Ryan. Yes, we can hear. Hi, Jamie. Yes. Hi. Thanks for taking the call and taking my question. This is Ryan from Bank of America. Just one question pertaining to the digital bank license. I understand it is still quite early to ask anything specific, so I will just keep it general. Given Singapore is quite a well-banked market, can I just ask what iFAST can offer the potential target market that the incumbent banks or finance companies or even some of the P2P lenders in Singapore? What you can offer them that these players cannot? Or put it another way, what is the strategy to compete with the existing players? Thanks. Okay. Yeah. I think the first point I would like to note really is that, I think when people think in terms of banking, they think in terms of banking in the current domestic market. So viewed from that perspective, then Singapore is a place that is quite well-banked. But if you really look at the opportunity that the internet world offer us today, I think we are looking at a world that is actually shifting quite rapidly. You find that a lot of the internet giants, especially those from the U.S. and increasingly some from the Chinese market, these players are able to continue to grow and to tap into the opportunity, not just within their country, not just within U.S., but really the ability to actually go beyond that and thank you to the customers from all around the world. Banks today, of course, you have a lot of global banks who are present in many different markets, but the business model is not exactly global yet, generally. What I mean by that is that banks will actually still need to stay in one country. Banks are generally still going to a different country and then doing business directly in that country. Right? So they are globalizing by setting up new offices in different markets. I think in the banking space as well as in fintech space, generally, we feel that there is an opportunity to actually build a bank that is truly global in nature. Meaning you can build a bank in Singapore that can take deposits from all over the world, from the region, from all over the world. That is really the true power of a digital bank rather than having to go to 100 countries just to do business in 100 countries. That is what we are interested in. So if you view it from that perspective, then I would say that the digital banking world is really an emerging world. Emerging world because how many people are truly opening bank accounts cross-border? It is still a very small number. Singaporeans may not find that there is a need to open account cross-border today, generally speaking, but you actually find that the other way around there is a huge level of demand. Lots of people from other countries, including China, want to open an account in Singapore and be able to put some money here. If you can do that in a digital manner without coming here physically, then that essentially is a big opportunity. That is the opportunity that we're eyeing as well as the deposit side of the business. If we're successful in this space, then I think we can do that well, and we can do that much better than what the local banks are able to do today because they are essentially not too interested. Right? Because compliance, they find a bit too troublesome for them, so they don't want. Once we can do that on the deposit side, then that give us the ability to then make a big difference on the lending side. Today, there are many players in the lending space, starting with China, right? We have thousands of P2P players. But most of them have died, and I think almost all of them will probably either die or be merged eventually. The problem with most players in the lending side of business is they don't have a source of deposit at low cost. If you don't have a source of deposit at low cost, then when you look for borrower, you have to look for borrowers who are willing to pay double-digit rates, which means this can't be a very high-quality borrower. That to me is the crux of the thinking. But we want good quality borrower. We may be looking for perhaps SMEs, smaller companies, and so on, but there are good quality SMEs out there. Just like iFAST was before we got listed. We're a good quality company, nice business, good cash flow, but we need capital sometimes. The incumbent banks are not too keen to do this part of business because it takes too much effort. I think there's good opportunity in this space. If we're successful on getting a license, I think we can do that well, compared to most of the existing lending players. So that's the gist of the opportunity that we see, which is why we're actually very keen to actually be pursuing this opportunity. Great. Thanks for the explanation. Yeah. Perhaps we have one last question. Have you had any engagement with the MAS since submitting your license update in June on this level? Yeah, they have been coming back to us with additional questions to our overall business plan and so on. I suppose they're asking whether they're working on it. I think they are working on it based on the questions. But they haven't given any indication at all? I don't think MAS will give any indication. I think they'll get more formal approval. I suppose we just have to make our guess on the basis of what's happening in the meantime. Is there any particular part or segment that you were a bit more worried or any color you can share about the depth of process that comes to you? I think so far it's been more of asking us to clarify different parts of the business plan and asking for further information and more details on the different parts that we have described. I think that's the current situation. With that, I think we have come to the end of the briefing. Thank you everyone for coming.