IFAST Corporation (IFAST SP) - Maybank Kim Eng 2017-10-13: A Leading Investment Products Supermarket

IFAST Corporation (IFAST SP) - Maybank Kim Eng 2017-10-13: A Leading Investment Products Supermarket IFAST CORPORATION LTD. AIY.SI

IFAST Corporation (IFAST SP) - A Leading Investment Products Supermarket


Catering to customer convenience 

  • iFAST is one of Singapore’s early movers engaged in the distribution and administration of a wide suite of investment products from various third party providers and across different asset classes on one platform.
  • Providing the convenience of a one-stop shop for investors has driven 9% revenue CAGR for FY12-FY16. The company is optimistic about being able to continue to grow its assets under administration (AUA) over the medium term from a combination of higher penetration in its home market Singapore, further ramp-up in overseas operations in Malaysia, Hong Kong and China, and potential cross-selling opportunities.


A business with high degree of recurring revenue 

  • The company caters to business and consumer segments, a somewhat differentiating factor from most others that tend to focus on either B2B or B2C. 
  • Moreover, the business is significantly more geared to recurring revenue growth from AUA (c85% of FY16 revenue recurring in nature) rather than a transaction / sales-commission-driven structure one might commonly see with product distribution businesses (more details inside).


Beyond SG: Growth potential but with challenges 

  • iFAST ventured into Hong Kong in 2007, Malaysia in 2008, and China in 2014 as it believes these markets present growth opportunities in specific segments and hold the potential to tap cross-border offshore investment flows as well. That said, gaining scale against entrenched players has been a long process and iFAST’s AUA is still very much Singapore-centric at c69% (at 1H17) followed by Hong Kong at c22% and Malaysia c7%. 
  • Management’s strategy is to continue to broaden and deepen its range of products and services in these overseas markets.




Company Profile 


Business 

  • iFAST is a leading Internet-based investment products distribution and administration business with total assets under administration (AUA) of SGD6.81b as at 1H17. It’s one-stop platform of investment products and services to FA firms, FIs, banks, and retail/high net worth (HNW) investors in Asia. It operates two main divisions: 
    1. Business-to-Business (B2B): Caters to financial advisory (FA) firms, financial institutions (FIs) and banks. Formed 74.2% of AUA in 1H17.
    2. Business-to-Consumer (B2C): Fundsupermart.com caters to investors who prefer to do their own investments online. Formed 25.8% of AUA in 1H17.
  • As at FY16, iFAST had > 230k B2B adviser-assisted and B2C customer accounts, > 5k investment products, and > 190 distribution agreements with global fund houses. It has > 6k wealth advisers, and > 240 FA firms, banks and FIs on its B2B platform.
  • From FY12-16, 83% of net revenue on average was recurring net revenue, which comprises trailer fees from suppliers, platform fees (B2B/B2C) and wrap fees (B2B).

Company milestones 

  • Founded in 2000 with the launch of Fundsupermart.com (FSM) in Singapore. Fundsupermart Holdings (renamed as iFAST Corporation) was incorporated in Sep 2000.
  • In 2002, iFAST Platform Services (B2B) launched in Singapore to provide unit trust investment platform and custodian services to Independent Financial Advisers and their clients.
  • Expanded to Hong Kong in 2007 (initially a B2C business with subsequent addition of B2B) and Malaysia in 2008 (both B2B and B2C) and to China in 2014 focusing only on B2B.
  • Listed on SGX Mainboard in Dec 2014.
  • Rolled out various initiatives such as iFAST Global Prestige (iGP) to service HNW investors in Singapore and Hong Kong in 2009/2010; FSM Mobile (mobile app) in 2011/2012; launched Bondsupermart.com in 2015 and distribution of bonds and ETFs on iFAST Singapore in 2015.
  • Made small-scale acquisitions to complement strategy: Acquired ING Platform Services (IPS), a Hong Kong-based platform, in 2009. Completed acquisition of Winfield Securities in HK in 2016.


SWOT Analysis 


Strengths 

  • Established domestic player with long operating history, brand recall and scale advantages.
  • Strong technology adoption culture to stay at the forefront of providing customer solutions. IT systems are developed in-house with minimum reliance on third-party developers to deliver customised solutions (such as recent rollout of FSMOne platform in Singapore which enables investors to transact across multiple products in one account). Capex guidance for FY17 is SGD6-7m similar to prior year.
  • Relatively high barriers to entry as securities and financial services industry are regulated.

Weaknesses 

  • Foray into new markets such as China may face execution and regulatory risks.
  • Entrenched competition in overseas markets has resulted in long gestation periods to build up scale and turn profitable in Hong Kong and Malaysia. China could potentially witnesses a long turnaround too although the company remains optimistic that it will not take as long to be profitable as the other markets.
  • Susceptible to volatility in capital markets and weak investment appetite. This can affect revenue growth, AUA size, new subscribers and number of financial advisers using iFAST platforms.

Opportunities 

  • Evolving customer preference for one-top convenience pushing product firms to utilise aggregators more aggressively than prior over-reliance on own exclusive distribution.
  • Greater adoption of investment platforms from FA companies, banks and financial institutions to be able to provide a diverse range of products to their corporate and individual clients.
  • Being able to tap cross-border offshore investment across its operating countries (e.g. Chinese B2B customers seeing investment alternatives in the Singapore market).

Threats

  • Competition from new technologies or new entrants that could potentially disrupt the relevance of iFAST’s platforms.
  • Changes in laws and regulations related to capital market activities and financial advisory services in the jurisdictions that iFAST operates in. Regulation on fee structure such as witnessed in some overseas markets like the UK which deem trailer fee structures to bias investment advice and product selection.
  • Overall trend of fee compression in the asset management industry from a combination of competition and the proliferation of ETFs will affect iFAST’s fee sharing arrangements as well.


Valuation and Risks 

  • The Street currently expects c.60%/22% YoY growth in iFAST’s net profit for FY17E/18E, respectively. iFAST is trading at 24x FY18E P/E and 19.6x FY19E P/E, based on Bloomberg estimates. 
  • iFAST’s competitors in Singapore are Aviva’s Navigator (B2B investment platform), Dollardex (B2C), Phillips Securities’ FAME (B2B) and POEMS (B2C).
  • There are no pure-play investment distribution platform competitors listed in Asia Pacific, and many platform providers are not listed or are just a part of larger financial and insurance institutions. Therefore, we compare iFAST against some listed service providers, online brokers, fund houses and FA firms, which are trading at 28.3x and 24.1x P/E for the two respective years (BBG consensus). One limitation is that Hargreaves Lansdown and TD Ameritrade’s market capitalisation are much bigger, albeit they provide some services that are similar to iFAST.

Growth Propositions

  • Higher growth in Hong Kong and Malaysia, which saw AUA hit record high at SGD1.51b and SGD0.47b in 1H17 respectively.
  • Ability to capture bigger market share and increase penetration for Singapore market.
  • Keen to build up iFAST brand in China for both onshore and offshore markets. A shorter period required to turn around China’s operations can provide upside.

Value Propositions

  • Management guide 60% dividend payout policy in FY17 based on net profit excluding China operation and exceptional items. Decent dividend yield of 2.9% as at FY16.
  • Decent balance sheet with net cash position of SGD22.5m as at FY16 provides M&A-related growth optionality.

Key Risk Factors: 

  • Increased competition from existing investment platform providers and banks may reduce margins and result in loss of market share. For example insurance companies are increasingly building up their own financial advisory businesses that also cross sell other competing products from the marketplace.
  • New technologies and/or new entrants may also potentially disrupt the relevance of iFAST’s platforms.
  • Sensitive to economic environment and financial market conditions. Adverse risk-off market environment can affect AUA growth and revenue.
  • Changes in laws and regulations related to capital market activities and financial advisory services in the jurisdictions that iFAST operates in - regulation on fee structure such as witnessed in some overseas markets like the UK, which deem trailer fee structures to bias investment advice and product selection.


NOT RATED
Target Price: N/A



Ng Li Hiang Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-10-13
Maybank Kim Eng SGX Stock Analyst Report NOT RATED Maintain NOT RATED 99998 Same 99998



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