iFAST Corporation Ltd. - Growth Trajectory Slower than Expected
- 4Q16 PATMI of SGD1.1mn missed our 4Q16 estimate of SGD2mn by 45%.
- Surprise came from an impairment loss on investment in financial assets and higher tax expense for the quarter.
- Downgrade to “NEUTRAL” from previous “BUY” rating with a lower target price of SGD0.78 (previously SGD1.275), pegged at unchanged 25x PER based on FY17F EPS of 3.13 cents (previous FY17F forecast was 5.10 cents) .
iFAST’s Asset under Administration (“AUA”) grew 8.1% y-o-y to hit SGD6.1bn.
- The growth was driven by better growth from Bonds, Exchange Traded Funds (“ETFs”) and Stocks.
- Bonds, ETFs and Stocks make up 7.2% (3Q16: 6.8%) of AUA; Funds make up the rest of 92.8% (3Q16: 93.2%) of AUA.
- At the same time, non-recurring net revenue improved due to increase in fees for currency conversion services as investments in foreign currency denominated products increased.
- We continue to expect FY17F AUA and fees growth to be driven by better asset mix because of the launch of the “one-stop” FSMOne platform which allows investors to invest in a multitude of products.
Launch of stock trading in SGX-listed stocks and ETFs.
- iFAST’s stockbroking capabilities for SGX listed stocks and ETFs hit a snag in Dec 2016 when its counter-party stopped providing it connection to the Singapore Exchange.
- iFAST has applied for trading membership with SGX and Management now expects its stock broking capabilities for SGX listed stocks to be ready by 2Q17.
Bonds will provide the boost in both Hong Kong and Malaysian AUA growth.
- Management is looking to launch FSMOne for Hong Kong B2C customers in 2017 to further grow AUA from its current B2B customers. Hong Kong AUA grew 1.7% y-o-y to SGD1.32bn as of 31 December 2016 boosted by the launch of the stockbroking business in Hong Kong.
- AUA of the Hong Kong stocks business including ETFs make up about 3.4% of Hong Kong’s total AUA. Hong Kong’s AUA makes up 21.6% of total AUA. We expect Hong Kong’s AUA to grow c.5% y-o-y in 2017, supported by the Hong Kong B2C business.
- For the Malaysian business, following the launch of insurance products distribution on the B2C platform in 3Q16, Malaysian AUA grew 5.7% q-o-q and 29.2% y-o-y to SGD367mn as of 31 December 2016.
- iFAST is expected to introduce bonds and discretionary portfolio management services in 2017 to expand the product range. We think that Malaysian AUA, given its low base, could continue to grow at c.30% y-o-y.
- We believe that bonds will provide the boost in both Hong Kong and Malaysian AUA growth.
Expect Chinese business to remain unprofitable in FY2017; may turnaround only by endFY2018.
- We expect Chinese business to remain unprofitable owing to slow top line growth and high operating costs as Management continues to build its team of wealth advisers.
- Management is looking to enhance its offshore business channels to investors from China.
- We expect the RMB initiatives announced by MAS in November 2015 to provide tailwind for iFAST’s Singapore market offerings.
Downgrade to “NEUTRAL” from previous “BUY” rating with a lower target price of SGD0.78 (previously SGD1.275).
- We have reduced the FY17F PATMI to SGD7.9mn from previous SGD13.0mn owing to slower growth trajectory than expected.
- The China business is expected to remain unprofitable in 2017 and improvements in overall business is expected to spread over the next two years which is slower than our expectations.