iFAST Corporation - DBS Research 2016-10-28: Short-term pain, long-term gain

iFAST Corporation - DBS Vickers 2016-10-28: Short-term pain, long-term gain IFAST CORPORATION LTD. AIY.SI

iFAST Corporation - Short-term pain, long-term gain

  • An improved quarter after four consecutive weak quarters; 3Q16 net profit grew 63% q-o-q.
  • Expenses continued to be high; China business still in start-up phase.
  • AUA rose 6.6% q-o-q; bonds and ETF contributed 6.8% of AUA; balance 93.2% from funds.
  • Maintain BUY; TP S$1.20.



Investing for the future. 

  • The push towards broadening the range and depth of investment products and services has affected iFAST’s short-term profitability. 
  • In Singapore, iFAST is likely to launch stockbroking capabilities at end-2016/early-2017 while the China business was soft launched in March 2016 and continues to be in the start-up phase. All these initiatives should pay off in the next few years.


An improved quarter; after four consecutive weak quarters.

  • iFAST reported a 63% q-o-q growth in 3Q16 net profit to S$1.85m on the back of 8% growth in revenue to S$21.0m, following a difficult 1H16. 
  • Assets under Administration (AUA) grew 6.6% q-o-q to S$6.0bn as at 30 September 2016 but expenses continued to be high.


Maintain zero AUA growth assumption for FY16 and +5% for FY17; +8% for FY18. 

  • We maintain our zero AUA growth assumption for FY16 and 5% growth for FY17. 
  • For FY18, we have imputed an 8% growth in AUA given a wider range of products and services, including stocks.


Valuation

  • Maintain BUY; TP S$1.20. We believe iFAST offers investors a unique investment proposition as a direct proxy for the wealth management industry as well as a platform into digital finance.
  • iFAST has been making progress to be an integrated investment product distribution platform, which will be key to ride on Asia's growing wealth management industry. 
  • We use the Dividend Discount Model (DDM) as the valuation methodology for iFAST, given that it is a cash-led business, supplemented by a relatively high dividend payout ratio of about 60%.


Key Risks to Our View

  • The securities and financial services industry is highly regulated and iFAST is subject to a variety of laws and regulations across the regions it operates in. iFAST’s operations are also vulnerable to market sentiment.




LING Lee Keng DBS Vickers | LIM Sue Lin DBS Vickers | http://www.dbsvickers.com/ 2016-10-28
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.200 Same 1.200




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