iFAST Corporation - DBS Research 2016-02-18: Tailor-made strategies for China

SGinvestors.io

CAPITALAND LIMITED C31.SI 

iFAST Corporation - Tailor-made strategies for China 

• FY15 results in line; AUA grew 5.2% y-o-y 
• Strategies for China business – partnership, sale of stake 
• Expect weak 1Q16 
• Cut AUA growth to 5% for FY16F and 10% for FY17F; TP reduced to S$1.45 

Cut in AUA growth. 

• We cut Assets Under Administration (AUA) growth to 5% p.a. for FY16F and a higher 10% for FY17F, from 15% and 20% respectively, as we are now more cautious given the recent sharp drop in global equity markets. 
• We now expect FY15-FY17F earnings CAGR of 16%, down from 23%, on the back of enhanced business operations and new opportunities iFAST is expected to garner. 
• iFAST’s key performance driver lies in the growth of AUA, which generates recurring revenues. We believe iFAST offers investors a unique investment proposition as a direct proxy to the wealth management industry as well as an angle into digital finance. 

New business initiatives to drive growth. 

• The distribution of bonds and ETFs in Singapore and launch of the investment fund platform in China should gradually improve iFAST’s AUA over time. 
• The launch of the portfolio management service in Hong Kong would help investors who want convenience in terms of portfolio construction and rebalancing. 
• In China, iFAST intends to adopt a different strategy, to a partnership model, which should help to speed up the startup process. 

FY15 in line, expect weak 1Q16. 

• FY15 net profit rose 15.1% yo-y to S$12.1m, but declined 1.2% y-o-y in 4Q15 to S$2.9m (excl. IPO expenses). 
• AUA rose 5.2% y-o-y to S$5.6bn as at Dec 15, with Singapore contributing 72%. 
• We expect a weak 1Q16, on the back of the sharp downturns in global equity markets. 

Valuation: 

• 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. 
• Our TP is reduced to S$1.45 after imputing a terminal growth rate of 4% and a 60% dividend payout ratio and cutting our growth assumption for AUA to 5% and 10% for FY16F and FY17F, from 15% and 20% respectively. 

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. 
• Security breaches is also a risk that could result in adverse publicity and damage to reputation.

LIM Sue Lin DBS Vickers | LING Lee Keng DBS Vickers | http://www.dbsvickers.com/ 2016-02-18

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.45 Down 1.61