iFAST Corporation - DBS Research 2016-10-28: Short-term pain, long-term gain

IFAST CORPORATION LTD. AIY.SI

iFAST Corporation - Short-term pain, long-term gain

An improved quarter after four consecutive weak quarters; 3Q16 net profit grew 63% q-o-q.
Expenses continued to be high; China business still in start-up phase.
AUA rose 6.6% q-o-q; bonds and ETF contributed 6.8% of AUA; balance 93.2% from funds.
Maintain BUY; TP S$1.20.

The push towards broadening the range and depth of investment products and services has affected iFAST’s short-term profitability.
In Singapore, iFAST is likely to launch stockbroking capabilities at end-2016/early-2017 while the China business was soft launched in March 2016 and continues to be in the start-up phase. All these initiatives should pay off in the next few years.

iFAST reported a 63% q-o-q growth in 3Q16 net profit to S$1.85m on the back of 8% growth in revenue to S$21.0m, following a difficult 1H16.
Assets under Administration (AUA) grew 6.6% q-o-q to S$6.0bn as at 30 September 2016 but expenses continued to be high.

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.

Maintain BUY; TP S$1.20. 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.
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%.

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. iFAST’s operations are also vulnerable to market sentiment.

LING Lee Keng DBS Vickers | LIM Sue Lin DBS Vickers | http://www.dbsvickers.com/ 2016-10-28

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.200 Same 1.200