iFast Corporation - DBS Research 2019-11-01: Scalable Business To Benefit Medium Term

IFAST CORPORATION LTD. (SGX:AIY)

iFast Corporation - Scalable Business To Benefit Medium Term

iFAST's 3Q19 results in line; decent top line but margins hit.
Record-high AUA; up 17.3% YTD.
Growth opportunities in Asia aplenty; iFAST’s scalable business model to benefit in the medium term.
Tweaked earnings up; maintain HOLD and Target Price of S$1.05.

iFAST Corporation (SGX:AIY) has made significant progress in broadening the range of investment products and services on its platforms which enable the group to ride on the growing Fintech and wealth management industry.
Near term, market volatility and continued investment in its platform will continue to affect iFAST’s bottom line, while its China operation is still loss-making. iFAST expects a moderate increase in operating expenses of 5-9% y-o-y in 2020, lower than the double-digit increase in the last few years.

iFAST's 3Q19 revenue grew 7.6% y-o-y to S$33.8m. This resulted from the fact that in the last few years, the group has been stepping up investments into its platform capabilities, particularly in IT. However, net margins for 3Q19 decreased to 7.1%, from 7.8% in 2Q19 and 8.1% in 3Q18. See iFast Announcements.
Overall, net profit eased 5.2% y-o-y to S$2.4m, dragged down by the still loss-making China operation, and also the group’s increased efforts in enhancing its platform capabilities. Margin pressure is expected to persist in the near term. Over the next 12 months, iFAST expects the pace of increase in the group’s operating expenses to moderate.
iFAST’s revenue of S$91.6m for the 9-month period accounts for 75% of our forecast while net profit accounts for 78%, in line with our expectations.
A 0.75-Sct DPS has been declared, similar to 3Q18. See iFast Dividend History.

Despite volatile financial market conditions and generally jittery investor sentiments in Asia, the group’s Assets under Administration (AUA) have grown 17.3% year-to-date, to a record high of S$9.4bn as at 30 September 2019.
In terms of geographical segment, Singapore is still the key market, accounting for 65% of total AUA. Bonds and Stocks & ETFs are gaining more traction, up from 7.1% in FY18 to 7.7% in 3Q19 for Bonds and from 4.5% to 5.5% for Stocks & ETFs during the same period.

iFAST believes that growth opportunities in Asia’s wealth management industry remain very substantial, and it is well-positioned to benefit from these opportunities in the medium-to-long term. Continuing growth in the group’s AUA and net revenue, combined with a slower pace of increase in operating expenses, will allow the group to better see the benefits of its scalable business model.

iFAST remains keen to pursue a digital bank licence. The Monetary Authority of Singapore (MAS) recently announced its plan to issue up to five digital bank licences to non-bank players. iFAST is in talks with potential partners for the upcoming application.

We tweaked our FY19F and FY20F earnings forecasts up by 1-4% after raising our AUA growth assumption for FY19F/FY20F to 10%/8%, from 5% y-o-y each previously, after the strong AUA growth YTD. For FY21F, we are expecting another 8% growth in AUA.
Our Target Price of S$1.05 is based on the Dividend Discount Model (DDM) valuation methodology, given that it is a cash-led business with a dividend payout ratio of 60% (excluding China operation). See iFast Share Price; iFast Target Price.

Lee Keng LING DBS Group Research | https://www.dbsvickers.com/ 2019-11-01

SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.050 SAME 1.050