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We are short IFAST Corp (SGX:AIY).
It has been more than a month since Sakura Research released its report and accompanying accounting questions, but SGX-listed iFast Corp has decided to ignore them. This further convinces us that iFast has a number of skeletons hidden away, as it continues to mislead stakeholders and destroy shareholder value.
iFast Corp operates a wealth management and brokerage platform, with the majority of its Assets Under Administration (AUA) coming from Singapore (more than 70% of all AUA). iFast Corp also provides IT services, such as those for the Hong Kong Mandatory Provident Fund Schemes Authority (MPFA eMPF / ePension project).
After raising S$205 million since 2022 (S$105 million in equity issuance in January 2022 and S$100 million in bond issuance in June 2024), iFast completed the 100% acquisition of a loss-making UK bank (iFast Global Bank subsidiary) in September 2024.
iFast’s operational and geographical complexity is rapidly increasing. iFast Corp’s founder, CEO, and Chairman is Lim Chung Chun, a Malaysian national.
1) IFAST’s core wealth management business is struggling, with its operating profitability per AUA dropping to record lows amid intense brokerage fees/commissions competition. Operating profit % margins per $ AUA have dropped from 0.181% in 2020 to 0.047% in 2023.
Recently, IFAST Corp has started counting the UK Bank customer deposits towards its wealth management/brokerage’s AUA – this seems highly irregular and possibly illegal.
IFAST’s S$20B AUAs are based in Asia (>70% from Singapore). AUAs include assets that IFAST manages or has discretion over, such as unit trusts, ETFs, stocks, and bonds. Customer deposits at the UK bank, while they can be invested in safe bonds and BoE instruments, should not be counted as AUA. It’s essential that IFAST clearly discloses how it calculates the platform AUA. AUA measurement and reporting is a key audit matter (KAM) raised by IFAST auditors (KPMG), and, therefore, an area of fraud risk.
Sources: IFAST Corp annual reports 2019, 2023. IFAST Corp 2Q2024 & 1H2024 Results Briefing on YouTube (12:19 / 1:00:24)
2) There is a temporary revenue bump from the Hong Kong ePension IT services project implementation (2023-2025), which we expect to drop off by approximately 80% in 2026 once the IT project enters the maintenance phase. Since 2021, IFAST has been providing and regularly updating its revenue and profit guidance for its Hong Kong business for 2023, 2024, and 2025. However, iFAST has refused to provide any guidance range for its revenues or profits of Hong Kong for 2026.
The recognition of IT fintech service revenues is a key audit matter (KAM) raised by IFAST ‘s auditors (KPMG) and, therefore, poses a fraud risk.
Sources: IFAST Corp annual report 2022, 2023.
3) IFAST Corp appears to have underreported its subsidiary UK bank losses by £9-10 million GBP for 2022 and 2023. IFAST Corp reported S$13.6 million SGD (approximately £8 million GBP) in losses for its UK banking operations on SGX, while its UK bank subsidiary reported losses of £17.57 million GBP for the 2-year period.
Sources: IFAST Corp annual report 2023, UK IFAST Global Bank Limited annual report 2023
4) We estimate that IFAST Corp has a goodwill impairment of approximately £19 million GBP yet to be recognized from the expensive UK bank acquisition, which reported losses in 2022, 2023, and H1 2024.
To acquire 100% of the loss-making bank, IFAST has so far injected £94 million (£84 million in equity and £10 million in loans) by 12 September 2024 into the Bank, with the Bank’s net tangible book value of just £13m prior to the acquisition.
iFast seems to have injected further funds into its UK bank on 26 September 2024.
Goodwill impairment is a key audit matter (KAM) raised by IFAST ‘s auditors and, therefore, poses a fraud risk.
Sources: IFAST Corp annual report 2023, UK Companies House [ https://find-and-update.company-information.service.gov.uk/company/13045848/filing-history ]
5) In Singapore, IFAST Corp CEO says that IFAST aims for its subsidiary bank’s breakeven in Q4, 2024.
Meanwhile, on its latest UK annual filings, the same Bank reports that it expects no profitability in the foreseeable future, and thus, it does not recognize any deferred tax assets. There is an intense competition for this tiny digital Bank in the UK, and thus, the Bank sees no foreseeable profitability.
Furthermore, The UK bank subsidiary’s CEO, Mujahid Malik, holds positions in other 5 UK companies.
Sources: UK IFAST Global Bank Limited annual report 2023; IFAST Corp 2Q2024 & 1H2024 Results Briefing on YouTube; Companies House – GOV.UK
6) Aggressive revenue recognition, suspect total receivables growth, and possibly understated credit impairment. IFAST’s Days Sales Outstanding (DSO) have increased to 275 days in 2023 compared to the 118 DSO days in 2021. However, the annual credit impairment is still at 0%, from 2020 to 2023.
The negative DSO trend in quickly rising receivables has continued unabated in H1, 2024.
Revenue recognition from both IT services and wealth management AUAs is a key audit matter (KAM) raised by IFAST’s auditors.
Furthermore, IFAST demonstrates erratic year-to-year changes in its reported credit risk counterparty exposure. For ex, from 2021 to 2023, its exposure to ‘Distributors’ increased from approximately $20 million to $120 million, 6X increase in just 2 years! Sources: IFAST Corp annual reports, 2020 to 2023.
7) Misleading operational cash flow reporting. Degrading adjusted operating cash flows (which actually turned negative in Q1 2024).
IFAST Corp is using the UK Bank customer deposits to flatter the Operating cash flows. For example, IFAST 2023’s operating cash flow of S$273m includes the customer deposits, but only S$16.7m without the UK Bank customer deposits.
IFAST does not seem to generate enough operating cash flows to pay annual CapEx of ~S$20m and annual dividends of ~S$15m.
Due to inability to generate free cash flows, iFast has had to raise S$205m (S$105 million in equity issuance in January 2022 and S$100 million in bond issuance in June 2024), to acquire the UK bank with just £13m GBP net tangible value prior to the acquisition. Based on its annual filings, the UK Bank is expected to keep making losses and necessitating further cash injections!
Due to cash flow issues, IFAST seems to take longer to pay its suppliers. Days Payable Outstanding (DPO) increased from 134 days in 2021 to 254 days in 2023, almost doubling in just two years!
Sources: IFAST Corp annual reports, 2021, 2022, 2023
Summary: All the above issues seem to show up on iFast’s increasing balance sheet stress. Since the end of 2021 to June-2024, a massive 955% growth in total liabilities, compared to an 124% increase in Equity. High Leverage ratio of 3.6 times as of June-2024.
The above statements and questions regarding accounting practices at iFast Corp that necessitate urgent investigations by regulators (including SGX RegCo and MAS) and follow-up enforcement actions.
So far we have received the following email reply from SGX RegCo Whistleblowing. “Please be informed that we are looking into the matters raised by you, and we will respond to you as soon as possible.”
We also hope that IFAST Corp management and IFAST Auditors (KPMG) will agree to respond to our accounting questions soon.
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