IFAST CORPORATION LTD. (SGX:AIY)
iFAST Corporation - Another Attempt At A Digital Banking Licence
- iFAST and its consortium have applied for a digital bank licence in Malaysia. The consortium will focus on the B40 segment. Competition will be stiff, with over 40 applicants reported to be vying for the licence. Up to 5 will be issued.
- Reiterate ADD call on iFAST. We expect positive share price movement on this news.
Consortium has strong domestic presence and technical expertise
- Leading a consortium, iFAST (SGX:AIY) has submitted an application for a digital banking licence in Malaysia. iFAST will own a 40% stake in the digital bank, if successful.
- The consortium’s Malaysian partners include Koperasi Angkatan Tentera Malaysia – one of the largest co-operatives in Malaysia, THZ Alliance – a private investment holding company founded by Y.M. Tengku Dato' Dr. Hishammudin Zaizi, the first cousin of the Sultan of Selangor, and Mr Lee Thiam Wah – founder and major shareholder of 99 Speed Mart (homegrown grocery chain with 1,900 retail outlets).
- The other non-domestic partner of the consortium is Yillion Fintech, which provides core banking technology and capabilities for Yillion Bank, 1 of 4 digital banks in China.
- Inclusive of iFAST CEO Lim Chung Chun’s stake (he is Malaysian), the beneficial equity ownership of the consortium will be ~57% Malaysian. This implicitly comes in line with Bank Negara Malaysia’s (BNM) preference for the controlling equity interest in the proposed licenced digital bank to be held by Malaysians.
- The consortium will target the bottom 40% (B40) population. The consortium seeks to offer financial solutions such as free life insurance, interest-free loans for daily necessities, and micro investments to the B40 segment, while being profitable.
B40 target segment fulfills BNM’s key criteria
- BNM will be issuing up to 5 digital banking licences by 1Q22F. The digital bank licencees will be able to serve both retail and corporate customers.
- Key factors for consideration for the licence by BNM include serving the best interests of Malaysia by driving financial inclusion, particularly in unserved and underserved segments, including retail and micro, small, and medium enterprises (MSMEs).
- Similar to the process in Singapore, successful licencees will operate in a Foundational Phase (for a minimum of three years, up to a maximum of five years), and will be subject to an asset limit of RM3bn (c.S$970m).
- During the Foundational Phase, the minimum capital fund amount is set at RM100m (S$32m). Upon the end of this phase, the minimum requirement will be raised to RM300m (S$97m). Note that capital fund requirements for digital banks in Malaysia are lower than the RM2bn (S$646m) requirement for domestic banking groups.
- A minimum total capital ratio of 8% will be required for digital banks – consistent with the requirement for other domestic financial institutions.
We think iFAST fulfills key considerations for a licence
- We think that iFAST’s consortium is well-positioned to contend for the licence given its financial standing, technical expertise, and domestic presence.
- Competition will be intense, with over 40 applicants reportedly vying for the licence. Companies reported to be applying for a licence include Axiata-RHB, Grab, Razer, Sunway-Linklogis (Tencent-backed), BigPay, and Green Packet-Zico-M24 Tawreeq.
- Our target price of S$8.00 for iFAST is based on 45x FY22F P/E (+2 standard deviation above mean).
- See
- Stronger-than-expected trading volumes due to regional travel restrictions are a potential catalyst.
Andrea CHOONG
CGS-CIMB Research
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https://www.cgs-cimb.com
2021-06-30
SGX Stock
Analyst Report
8.000
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