CAPITALAND LIMITED
C31.SI
iFAST Corporation - Dampened by markets and higher costs
- 1Q16 results below amid negative market sentiment and business expansion plans
- Expect further dilution for China business
- Looking to expand product suite and services
- Cut AUA growth and impute higher expenses
A unique proposition.
- We believe iFAST offers investors a unique investment proposition as a direct proxy for the wealth management industry as well as a platform into digital finance.
- iFAST’s key performance driver lies in the growth of Assets Under Administration (AUA), which generates recurring revenues. The company is still in growth and investment mode with its China operations just starting up.
- In the meantime, iFAST will continue to invest in its platform as it expands its product offerings.
1Q16 below expectations; hit by weak market sentiment and high expenses.
- Jan and Feb 2016 were difficult months for capital markets. 1Q16 net profit fell by 58.4% y-o-y to S$1.25m, accounting for only 9% of our FY16 forecast.
- Revenues came in at S$18.7m (-10.6% y-o-y) and made up 20% of our earlier estimate for FY16.
- The increase in expenses in 1Q16 coincided with the adverse financial market conditions that significantly affected the group’s profit.
Lower AUA growth amid market weakness; expect higher costs as product offerings expand.
- We cut AUA growth to flat for FY16F and 5% for FY17F (from 5% and 10% respectively), given the weak market sentiment. Coupled with higher expenses as the company invests in IT to further enhance its platforms for additional product offerings, especially for its China operations, our earnings for FY16/17F are reduced by 24%/30%.
- Continued drive for business growth. iFAST will be launching an integrated wealth management platform that includes stock transactional capabilities in mid-2016 for its Hong Kong operations. iFAST would likely also expand into equities product offerings for its Singapore platform to expand its product suite.
Valuation:
- Maintain BUY, but TP is reduced to S$1.38 after an adjustment to earnings for weaker growth and higher expenses. Dividend payout ratio remains at 60%.
- 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.
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 are also a risk that could result in adverse publicity and damage to reputation.
LING Lee Keng
DBS Vickers
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LIM Sue Lin
DBS Vickers
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http://www.dbsvickers.com/
2016-05-03
DBS Vickers
SGX Stock
Analyst Report
1.38
Down
1.45
