A proper investment thesis should include the company’s competitive moat, its catalysts, along with its risks.
The moat protects a business from competitors and represents a key reason why the company is attractive to look into.
Catalysts make up the growth drivers of the business.
Risks highlight what could go wrong and what may derail the company’s growth plans.
When we look for growth, the focus should be on the type and nature of the catalysts.
Some catalysts may take a long time to play out, while others could be more immediate.
As investors, it is important to scrutinise each catalyst to determine its impact on the company.
When looking at businesses, the best type of catalyst is one that will happen fairly soon, and will also have a significant positive impact on the business.
Here are two Singapore companies that we feel have such catalysts, and could go on to deliver stellar returns for their investors.
1. iFAST Corporation Limited
iFAST is a financial technology company with assets under administration (AUA) of $11.15 billion as of June 30, 2020.
The group offers access to over 11,000 investment products including over 7,500 funds from over 270 fund houses, as well as over 1,400 bonds and stocks.
iFAST is present in Singapore, Malaysia, Hong Kong, India and China.
The inflow of money into Asia has boosted the group’s prospects and pushed its AUA to a record high.
For the first half of 2020, revenue jumped 33.2 per cent year on year to $77 million, while net profit after tax doubled from $4.1 million to $8.2 million.
The acceleration of digital adoption in the wealth management industry continues to be a catalyst for the group’s long-term growth.
iFAST has also put in a bid to obtain a digital wholesale banking licence in Singapore.
It has partnered with Yillion Group and Hande Group from China for this purpose.
Should iFAST clinch this licence, it will significantly accelerate the inflow of assets and boost AUA even further.
The group can establish a new revenue stream by doling out loans, and earn net interest income similar to what a bank does.
In addition to the above, a third catalyst lies in the form of Hong Kong shortlisting finalists to digitise its retirement funds system.
It is rumoured that telecommunications provider PCCW Limited is working with iFAST as its technology partner for its bid.
The Mandatory Provident Fund Schemes Authority of Hong Kong is looking to upgrade its systems by creating an electronic platform for members.
At stake is around HK$37 billion (S$7 billion) in revenue over the next decade, of which iFAST stands to take a cut of if PCCW wins the bid.
2. AEM Holdings Ltd
AEM offers application-specific intelligent system test and handling solutions for semiconductor and electronics companies serving the 5G and artificial intelligence (AI) markets.
The group has five manufacturing plants located in Singapore, Malaysia, China, France and Finland.
AEM just announced a stellar set of earnings for the first half of 2020.
Revenue jumped by 81.7 per cent year on year to hit $273.7 million.
Net profit more than doubled from $22.3 million a year ago to $55.3 million.
All divisions recorded growth in sales, and demand for the group’s semiconductor test solutions continues to be robust.
Although the pandemic has disrupted global supply chains, AEM was minimally affected.
As both 5G and AI markets are displaying promising future growth, this long-term catalyst should stand AEM in good stead.
Aside from organic growth, AEM is also growing through acquisitions.
In July, the group announced the acquisition of DB Design Group, Inc. DB is a world-renowned supplier of automation fixtures and other test-related products.
This acquisition helps to expand AEM’s design and application engineering capabilities, and also expands its client base to include more names in the semiconductor and electronics industries.
Last year in December, AEM had acquired Mu-TEST, an automated test equipment company, for EUR 7.5 million (S$12 million).
The acquisition added customised tester development capabilities to AEM’s growing list.
These acquisitions will broaden AEM’s product and service offering and act as a strong catalyst for the group to capture more business and clients in future years.
This article was first published in The Smart Investor. Disclaimer: Royston Yang owns shares in iFAST Corporation Limited