iFast Corporation - DBS Research 2020-02-20: Margin Pressure Despite Higher Assets Under Administration

IFAST CORPORATION LTD. (SGX:AIY)

iFast Corporation - Margin Pressure Despite Higher Assets Under Administration

iFast Corporation's 4Q19 one of the best quarters, results above expectations.
AUA reached record high of S$10bn as at end-2019, up 24.2% y-o-y. Raised earnings by 14-18% on higher AUA.
Operating expenses remain high; pace of increase to moderate.
Maintain HOLD with higher Target Price of S$1.10.

iFast Corporation (SGX:AIY) reported 4Q19 revenue of S$33.8m (+21% y-o-y, flat q-o-q). Net profit increased 15% y-o-y (+23% q-o-q) to S$2.96m, the best quarter in four years.
For FY19, net profit of S$9.3m was down 12.9% y-o-y, as 1H19 was weak. Overall, FY19 net profit was 10% above our expectations though revenue of S$125.4m (+3.4% y-o-y) was in line. Expenses remained high and China operation is still loss-making; with net loss of slightly over S$1m per quarter.
A 0.90-Sct final DPS was declared, bringing total DPS for FY19 to 3.15 Scts, similar to FY18.

Expenses remain high as iFast Corporation continues to invest in and enhance its regional platform capabilities further, and to lay the initial foundations to be a digital/virtual bank.
Excluding the application for the digital banking licence in Singapore, iFast Corporation expects its operating expenses to increase by approximately 6.8-9.5% y-o-y to approximately S$59.9- 61.4m in 2020, lower than the double-digit increase over the past few years.

Assets under Administration (AUA) continued to charge higher, by 24.2% y-o-y, to reach a record high of S$10bn as at 31 December 2019. Record AUAs have been achieved in Singapore, Hong Kong and Malaysia, as the Group’s businesses have benefitted from its continuous efforts in improving the range and depth of its products and services.
In the last three years, the Group’s AUA has increased approximately 64% from S$6.1bn as at end-2016 to S$10.0bn as at end-2019.

iFast Corporation 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 moderation in the pace of increase in operating expenses, will allow the Group to better see the benefits of its scalable business model.

As at 19 February 2020, the Group has not seen any substantial adverse impact on its overall business. The AUA of the Group as at 19 February 2020 remained above the level at the end of 2019.
Pursuing digital bank licence. iFast Corporation led a consortium comprising Yillion Group and Hande Group and submitted an application for a digital wholesale bank licence in Singapore. iFast Corporation will own a 65% stake in the proposed digital bank. A digital bank licence would allow iFast Corporation to effectively acquire global mass affluent customers and deposits at low costs. Competition remains keen, with about 14 applicants in this category.

FY20F and FY21F earnings forecasts were revised up by 14-18% after imputing a higher base for FY19 AUA, while retaining our AUA growth assumption. Our Target Price of S$1.10 (previously S$1.05) is still based on the Dividend Discount Model (DDM) valuation methodology, given that it is a cash-led business.
Maintain HOLD.
See iFast Share Price; iFast Target Price; iFast Analyst Reports; iFast Dividend History; iFast Announcements; iFast Latest News.

Lee Keng LING DBS Group Research | https://www.dbsvickers.com/ 2020-02-20

SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.10 UP 1.050