iFAST Corporation - DBS Research 2016-08-01: Investing for the future

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CAPITALAND LIMITED C31.SI 

iFAST Corporation - Investing for the future

• 2Q16 results below expectations.
• AUA fell 1.5% y-o-y but rose 2.1% q-o-q to S$5.63m as at June 2016.
• Targets to introduce stock transaction in Singapore by end-2016/early 2017.
• Cut FY16F/FY17F earnings by 43%/40%; maintain BUY with lower TP of S$1.20.

Riding on the growing wealth management industry. 

• 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 has been making progress to be an integrated investment product distribution platform, which will be key to ride on Asia's growing wealth management industry.

2Q16 results dragged by higher expenses and adverse market conditions. 

• Adverse market conditions have led to a 16% drop in 2Q16 revenue to S$19.4m. Coupled with higher expenses, especially in China, net profit declined 65% to S$1.1m. 
• For 1H16, while revenue of S$38m accounts for 44% of our FY16F forecasts, net profit of S$2.4m accounts for only 23%, below expectations. Assets Under Administration (AUA) fell 1.5% y-o-y but rose 2.1% q-o-q to S$5.63m as at June 2016. 

Maintain zero AUA growth assumption for FY16 and +5% for FY17; FY18 +8%. 

• We maintain our zero AUA growth assumption for FY16 and 5% growth for FY17. For FY18, we have imputed an 8% growth in AUA given a wider range of products and services, including stocks. 
• After factoring in higher expenses and lower net revenue/AUA ratio, earnings for FY16F and FY17F were cut by 43% and 40% respectively. 

Broadening range and depth of products and services. 

• iFAST will launch an integrated wealth management platform that includes stock transactional capabilities for its Hong Kong operations in 3Q16. 
• The Singapore Business received formal registration as a CDP Depository Agent in July 2016, which is a positive step towards its eventual introduction of stocks targeted for the end of the year/early 2017.

Valuation:

• Maintain BUY, but TP is reduced to S$1.20 on lower earnings. 
• 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 ratio of about 60%.

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.

LING Lee Keng DBS Vickers | LIM Sue Lin DBS Vickers | http://www.dbsvickers.com/ 2016-08-01

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.20 Down 1.38