iFAST Corporation - DBS Research 2017-04-28: Worst Is Over

iFAST Corporation - DBS Vickers 2017-04-28: Worst Is Over IFAST CORPORATION LTD. AIY.SI

iFAST Corporation - Worst Is Over

  • 1Q 2017 net profit surge 56.7% y-o-y to S$1.96m, better than expected.
  • AUA grew 17.2% y-o-y to reach a record high of S$6.46bn.
  • Raised FY17F AUA growth to 8%; expenses remain high but pace of increase should taper.
  • Upgrade to BUY; TP: S$0.94.



Surge in 1Q 2017 results 


1Q 2017 net profit surge 56.7% y-o-y to S$1.96m, better than expectations: 

  • Following a difficult 2016, 1Q2017 started off on an encouraging note. Net profit of S$1.96m (+56.7% y-o-y) for 1Q 2017 accounts for 37% of our forecasts. Revenue of S$22.1m (+18.3% y-o-y) was in line, accounting for 25% of our estimate.
  • AUA grew 17.2% y-o-y to reach a record high of S$6.46bn.
  • The increase was mainly due to the growth of the group’s business and AUA in the quarter, contributed by the group’s continuing efforts to broaden the range and depth of its investment products and services in recent years, besides benefitting from improved market sentiment in 1Q 2017. 
  • The group’s AUA grew 17.2% y-o-y to reach a new record of S$6.46bn as at 31 March 2017.

Singapore remains key contributor: 

  • Singapore operations are still the major contributor of the group’s revenue. The revenue of Singapore operations grew 20.0% y-o-y in 1Q17, which was mainly contributed by increases in investment subscription amounts (including transfer-in amounts) in Unit Trusts, bonds and ETFs in the quarter. The AUA of Singapore operations grew 13.8% y-o-y as at 31 March 2017.
  • In Hong Kong, benefitting from continuing efforts to broaden the range and depth of its investment products and services, the AUA of operation grew 17.3% y-o-y. In Malaysia, the significant growth of business and AUA contributed to the significant increase of 41.0% y-o-y in revenue in 1Q17. The AUA of Malaysia operations grew 33.5% y-o-y as at 31 March 2017. 
  • Following the soft launch of the China business in March 2016, China has started to generate revenue.

Expect stocks and ETFs trading capabilities for Singapore in 2Q 2017. 

  • The Singapore operations are targeting to launch their trading capabilities in SGX-listed stocks and ETFs in 2Q 2017. The company has cleared some key system tests in the process of applying for Trading and Clearing Member to SGX, which is pending formal clearance from the relevant authorities.


Outlook and Earnings & Recommendation 


Raised FY17F AUA growth to 8%. 

  • We raised our growth assumption for AUA for FY17F to 8% from 5% previously. For FY18F, AUA growth assumption is maintained at 5%. As such, we are expecting revenue growth of 14% and 8% for FY17F and FY18F respectively, on the back of the broadening range and depth of investment products and services.

Expenses remain high but pace of increase should taper.

  • Operating expenses are still expected to increase, especially in China as it is still in the start-up phase. 
  • Overall, the pace of increase for operating expenses is expected to slow down to 10% for FY17F and 7% for FY18F, vs average of 16% in the last few years, as the bulk of the expenses, including building the FSMOne (a seamless multi-product transactional platform for the investor community) and the platform for stocks and ETFs capability, has already been accounted for.

New products and services to boost revenue. 

  • iFAST launched the FSMOne on its Singapore B2C operations in December 2016, and the stocks and ETF capability is also expected to launch in 2Q17. 
  • In Malaysia, iFAST expanded its investment product range to include bonds in April 2017. The Malaysia operation also intends to offer robo-advisory portfolios by the middle of this year. 
  • The Hong Kong operations have added stocks/ETFs on their B2C platform in April 2017, following the launch of stocks/ETFs on the B2B platform in 2016.


Upgrade to BUY; TP: S$0.94. 

  • Since our downgrade to HOLD call in February 2017, iFAST's share price has dropped about 30%.  With a difficult 2016 behind us, boosted by encouraging 1Q 2017 results, we upgrade iFAST to BUY. 
  • We expect earnings growth of 20% for FY17F, and another 15% for FY18F, as iFAST reaps the fruits of labour, on its consistent efforts to broaden the range and depth of its investment products and services in the last few years. 
  • TP of S$0.94 is 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%.




LING Lee Keng DBS Vickers | LIM Sue Lin DBS Vickers | http://www.dbsvickers.com/ 2017-04-28
DBS Vickers SGX Stock Analyst Report BUY Upgrade HOLD 0.940 Same 0.940



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