iFast Corporation - DBS Research 2020-04-23: Rising Alongside Fintech


iFast Corporation - Rising Alongside Fintech

  • Record-high profit in 1Q20; up 135% y-o-y and 22.9% q-o-q.
  • Margin improvement from higher revenue and moderate cost increase.
  • AUA eased 6.4% q-o-q (+9.1% y-o-y) to S$9.54bn, outperforming global financial markets.
  • Upgrade to iFast BUY with higher Target Price of S$1.27.

Record-high profit in 1Q20

  • iFast Corporation (SGX:AIY) reported 1Q20 net profit of S$3.64m, an increase of 135% compared to 1Q19 (+22.9% q-o-q). This was achieved on the back of a 41.5% y-o-y increase in gross revenue.
  • Both the record-high profit and revenue in 1Q20 were achieved despite a major sell-off in financial markets globally during the quarter.
  • A first interim DPS of 0.75 Scts has been declared, similar to 1Q19.

Margin improvement.

  • Net margins improved to 9.4% in 1Q20, from 8.7% in 4Q19 and 7.4% in FY19, driven by higher revenue and slower increase in costs. Excluding the application for the digital banking licence in Singapore, iFast 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.

AUA outperformed global financial markets.

  • iFast's AUA declined 4.6% q-o-q (+9.1% y-o-y) to S$9.54bn during the quarter. The quantum of the decline in AUA was not huge, as compared to the steep sell-down in global financial markets. This was because in 1Q20, the Group saw a record two-fold y-o-y increase in net inflows of funds, both from B2C and B2B segments.
  • On FSMOne.com, the seamless online services attracted a record number of new account holders in 1Q20. The B2B segment also saw increase in revenue as wealth advisers were active in advising their clients amidst the volatile market.

All key markets registered growth in revenue; Singapore and Hong Kong saw strong growth in profits.

  • In Singapore, net revenue grew 24.8% y-o-y to S$12.2m in 1Q20, while net profit before tax rose 76.1% y-o-y to S$3.5m. The improvements in net revenue and profit were due to record inflows into the various investment products and improving margins.
  • Hong Kong registered a 134% y-o-y surge in profit. Stocks and ETFs turnover doubled in 1Q20 as compared to 4Q19, while the turnover for unit trusts and bonds recorded double-digit growth in the quarter.
  • In Malaysia, net revenue grew 11.4% y-o-y but profit dipped 6.4% mainly due to the completion of IT projects last year.
  • In China, AUA grew 24.1% y-o-y and 17.8% q-o-q despite the volatile market conditions resulting from the COVID-19 outbreak. But it continued to register a net loss of S$1.08m in 1Q20 (S$1.13m in 1Q19).

Impact of COVID-19.

  • As at 22 April 2020, iFast had regained the S$10bn AUA level that was seen at the end of 2019.
  • Being an online wealth management platform, iFast is less adversely impacted than the general economy. In the medium-to-long term, the COVID-19 crisis is expected to lead to an acceleration in the pace of digitalisation of financial services, and the pace of adoption of Fintech services by consumers.

Pursuing digital bank licence.

  • iFast led a consortium comprising Yillion Group and Hande Group and submitted an application for a digital wholesale bank licence in Singapore. iFast will own a 65% stake in the proposed digital bank. A digital bank licence would allow iFast to effectively acquire global mass affluent customers and deposits at low costs.
  • Competition remains keen, with about 14 applicants in this category. The award of the digital bank licence by MAS has been pushed back to 2H20 from June, in view of the COVID-19 situation.

Upgrade to BUY with higher Target Price of S$1.27.

  • We revised up our FY20F and FY21F earnings forecasts by 18% each after imputing higher non-recurring revenue, while retaining our AUA growth assumption of 8% p.a. for both years. iFast's non-recurring revenue are mainly derived from transaction fees from stocks and ETF, administrative service fees and also IT solution fee from provision of IT Fintech solutions to business partners.
  • In terms of product mix, investment in stocks and ETFs increased to 7.4% in 1Q20, from 4.5% in 1Q19 and 6.1% in 4Q19.
  • See iFast Share Price; iFast Target Price; iFast Analyst Reports; iFast Dividend History; iFast Announcements; iFast Latest News.
  • On the back of the higher earnings, our Target Price is raised to S$1.27 (previously S$1.10), still based on the Dividend Discount Model (DDM) valuation methodology, given that it is a cash-led business.
  • Upgrade to BUY.

Lee Keng LING DBS Group Research | https://www.dbsvickers.com/ 2020-04-23
SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.27 UP 1.100