IFAST Corporation - RHB Invest 2017-07-31: Momentum On Track But Valuations Are Now Rich

IFAST CORPORATION LTD. AIY.SI

IFAST Corporation - Momentum On Track But Valuations Are Now Rich

iFAST continued its strong earnings growth momentum with NPAT surging 76.1% YoY in 1H17, along with the bullish performance in the equities market.
In addition, the group has been busy broadening its range of products and services over the past two years. As a result, we lift our FY17F-18F NPAT by 10%, resulting in our DCF-derived TP rising to SGD1.01 (from SGD0.88, 4% downside).

However, we expect losses in China to continue, and the stock’s valuations are now rich after the recent strong performance.
Downgrade to NEUTRAL from Buy.

iFAST Corp (iFast) continued its strong earnings growth momentum with NPAT surging 76.1% YoY in 1H17, along with the bullish performance in the equities market.
In fact, its 1H17 NPAT would have more than doubled to SGD6.03m if not for its China operations, which have been a drag due to its start-up phase.
However, we feel that the worst may be over for iFast if such market conditions can sustain. In addition, total assets under administration (AUA) has reached a record high of SGD6.81bn.

Over the last two years, the group has been busy broadening the range of products and services on its investment platform to position itself for potential growth opportunities and changes in the wealth management industry in Asia. The full benefits from these efforts, coupled with its improved IT solutions and focus on providing transparent pricing, research and information to clients, will likely be realised in the coming years
The Singapore operations launched SGX trading capabilities on its B2C platform (via the FSMOne account) in Jun 2017, and on its B2B platform in Jul 2017.

iFast’s business in China remains in the early stages of building the iFAST brand among potential clients and investment practitioners in China’s wealth management industry. The division incurred a wider loss of SGD2.01m in 1H17.
We do not expect its China operations to be profitable in 2017 and expect the division to continue incurring more expenses as it ramps up. The Chinese operations will likely look to tie up with more funds, in addition to conduction more in-house advisory training.
Due to lower margins, management estimates that AUA at this division would need to be more than SGD1bn in order to break even.

With the strong earnings momentum continuing, we lift our FY17F-18F NPAT by 10%, resulting in a higher DCF-derived TP of SGD1.01.
However, with continued losses projected at the Chinese operations, coupled with the stock’s rich valuations after the recent strong share price performance, we downgrade our call to NEUTRAL.
In addition, iFast’s profitability has a strong correlation to the stock market’s performance, and being prudent, there is a risk of a market correction, which may then impact iFAST’s profitability negatively.

Jarick Seet RHB Invest | http://www.rhbinvest.com.sg/ 2017-07-31

RHB Invest SGX Stock Analyst Report NEUTRAL Downgrade BUY 1.01 Up 0.880