iFAST Corporation - DBS Research 2017-02-20: Lacking catalysts

iFAST Corporation - DBS Vickers 2017-02-20: Lacking catalysts IFAST CORPORATION LTD. AIY.SI

iFAST Corporation - Lacking catalysts

  • Weak FY2016 results; AUA grew 8.1% y-o-y.
  • AUA growth assumption of 5% for FY17F and FY18F.
  • Cut earnings for FY17F by 23% and 25% for FY18F.
  • Downgrade to HOLD; TP S$0.94.



Downgrade to HOLD. 

  • Earnings for FY17F are expected to be flat as the push towards broadening the range and depth of investment products and services, though is an investment for the future, has affected iFAST’s short-term profitability.
  • Operating expenses are expected to be high, especially in China as it is still in the start-up phase. 
  • With no near-term catalysts in sight, coupled with high operating expenses and lack of earnings growth, we downgrade iFAST to HOLD.


Weak FY2016 results; AUA grew 8.1% y-o-y. 

  • For FY2016, iFAST registered net profit of S$5.3m (-56% y-o-y), on the back of a 6% drop in revenue to S$80.6m. Market conditions were tough, especially in 1H2016. 
  • Assets under Administration (AUA) grew 8.1% y-o-y to S$6.1bn as at 31 December 2016, contributed by the group’s effort to broaden the range and depth of investment products and services.


AUA growth assumption of 5% for FY17F and FY18F. 

  • We maintain our 5% growth assumption for AUA for FY17 but cut FY18 growth to 5% from 8%. As such, we are expecting revenue growth of 11% and 8% for FY17F and FY18F respectively, on the back of the broadening range and depth of investment products and services.


Valuation

  • Cut earnings forecasts by 23% to 25%; downgrade to HOLD.
  • Overall, we revised our earnings for FY17F down by 23% and 25% for FY18F. Hence, TP is cut to S$0.94, from S$1.20 previously, based on the Dividend Discount Model (DDM) valuation methodology, 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/ 2017-02-20
DBS Vickers SGX Stock Analyst Report HOLD Downgrade BUY 0.94 Down 1.200



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