iFast Corporation - CGS-CIMB Research 2020-07-01: Fierce Competitor In The Digital Race


iFast Corporation - Fierce Competitor In The Digital Race

  • We hosted a conference call for investors with iFast Corporation’s CEO to discuss business updates, competition on the ground, and digital bank strategy.
  • We see more than a 1 in 3 probability of iFast Corporation obtaining a digital banking licence. Its profitable fintech and wealth business model gives it an edge.
  • The potential bank will strategically target SMEs, building a deposit base from its cash-rich wealth franchise. Lending at cheaper rates is its eventual aim.
  • Reiterate ADD with Target Price of S$1.65 based on SOP, pegging iFast to 26x FY21F P/E and S$100m paid-up capital for the DWB licence.

Reiterate ADD post conference call with iFast

  • We recently hosted iFast Corporation (SGX:AIY) in a conference call with a group of institutional clients. We remain positive on the stock as it is a profitable fintech player, has a proven track record of growing its assets under administration (AUA), and has strong levels of recurring revenue ( > 80% of income).
  • Reiterate ADD with unchanged S$1.65 Target Price, based on SOP pegged to 26x FY21F P/E and S$100m minimum paid-up capital for digital wholesale banking (DWB) licence.

We see more than a 1 in 3 probability of obtaining the licence

  • Nine digital wholesale bank applicants are shortlisted to contest for three DWB licences. We view this in two parts – the probability of obtaining the licence and the expected value from the licence.
  • Management believes that iFast has more than a 1 in 3 probability of being awarded the licence for two reasons –
    • Firstly, the group’s status as a homegrown player and its proven operating track record in handling cash through its wealth business. The current mix of applicants mainly comprise a number of Chinese players looking to enter the local banking scene. Note that iFast is the only DWB applicant listed on the SGX.
    • Secondly, the group’s proven track record of running a profitable wealth management business powered by fintech gives confidence to it meeting the MAS’s key assessment criteria of managing a prudent and sustainable banking business.

Digital bank to target the SME segment

  • Management intends to target SMEs with good credit ratings when it commences lending operations. Its strategy is to extend lower-quantum loans to smaller SMEs - a segment currently underserved by banks given its perceived riskiness and limited operating track record.
  • To fund the 65% stake in the consortium with Yillion Group and Hande Group, management plans to raise c.S$80m in capital via a combination of internal sources, borrowings and equity raising.

Threading well through Covid-19

Andrea CHOONG CGS-CIMB Research | Caleb PANG Huan Zhong CGS-CIMB Research | https://www.cgs-cimb.com 2020-07-01
SGX Stock Analyst Report ADD MAINTAIN ADD 1.650 SAME 1.650