IFAST Corporation (IFAST SP) - UOB Kay Hian 2017-05-02: A Strong Earnings Rebound To Kick Off FY17

IFAST CORPORATION (IFAST SP) - UOB Kay Hian 2017-05-02: A Strong Earnings Rebound To Kick Off FY17 IFAST CORPORATION LTD. AIY.SI

IFAST CORPORATION (IFAST SP) - A Strong Earnings Rebound To Kick Off FY17


    VALUATION


    Maintain BUY and DCF-based target price of S$1.02. 

    • Our thesis is unchanged, where we reiterate earnings have bottomed in 2016, and should rebound in 2017. We see the most recent stock price decline as overreaction on market volatility, given that the group remains operationally strong, showing signs of recovery since 2H16. 
    • Maintain BUY and DCF-based target price of S$1.02, based on terminal growth of 2% and WACC of 6.5%.
    • Maintain earnings estimates, with a 3-year net profit CAGR of 23.6% in 2017-19.


    INVESTMENT HIGHLIGHTS


    Earnings in line with our forecast but beat consensus. 

    • IFAST’s 1Q17 net profit is in line with our estimate, coming in at 28% of our full-year forecast but beat the street’s at 31% of full-year estimate.

    Revenue growth outpaced cost. 

    • 1Q17 net profit grew 61% yoy as net revenue growth (+19.4%) outpaced operating expense growth (+5.1% yoy). All core markets (ex China) showed significant rise in earnings on improved market sentiment.

    AUA springboard to yet another record high.... 

    • As of 1Q17, the group’s assets under administration (AUA) increased 17.2% yoy to another record high of S$6.46b on a broadened range of investment products. Of note, the group recorded commendable growth in AUA across all geographical segments - Singapore: 13.8% yoy, Hong Kong: 17.3% yoy, Malaysia: 33.5% yoy.

    …and to gather steam, especially from 2H17. 

    • Singapore remains one of the biggest contributors to underlying earnings (92% of net profit ex China), and we remain optimistic on the segment’s outlook. With new products such as trading capabilities in SGX-listed stocks/ETFs to be launched by Jun 17, we expect to see more impetus from the Singapore operations from 2H17. 
    • Contributions from newer products such as bonds, ETFs and stocks currently stand at only 7.4% of group AUA but we expect this to expand on upcoming launch and ramp-ups.

    China will still be loss-making in 2017 but showed signs of abating. 

    • China is still expected to be loss-making this year, but losses are expected “ to not increase significantly” according to management. 
    • Indicatively, we note that net losses in China have been tapering gradually since 3Q16 (3Q16: S$1.1m v 4Q16:S$1m v 1Q17: S$0.9m). While China has yet to contribute materially to group AUA (est < 1%), we believe operations will likely break even in 3-4 years. 
    • As of 1Q17, the group had signed up more than 55 fund houses (45 in Dec 16) with over 2,100 funds (1,800 as at Dec 16). 

    Strong cash position, clean balance sheet. 

    • As of Mar 17, iFAST remained debt-free with S$26.5m cash. We expect capex requirements for 2016-17 at S$6m-7m p.a. to support business expansion and to strengthen its IT capabilities. 
    • The group declared an interim dividend of 0.68 S cents per share for 1Q17. This is equivalent to a payout of 60.6% of net profit, excluding its China operations. 




    Singapore Research UOB Kay Hian | http://research.uobkayhian.com/ 2017-05-02
    UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 1.02 Same 1.02



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