iFast Corporation - CGS-CIMB Research 2020-07-23: Trading Away The Stay-Home Blues


iFast Corporation - Trading Away The Stay-Home Blues

  • iFast Corporation's 2Q20 net profit of S$4.5m was a quarterly record high; this came from a surge in stockbroking transaction volumes in the B2C segment in Singapore.
  • AUAs rose 23% q-o-q to S$11.2bn as net inflows rebounded from 1Q20 market volatility. 2Q20 inflows were the strongest on record at +S$657m.
  • We raise our FY20 estimates to reflect the sustained growth in stock and ETF trading volumes, and higher AUA, but also higher opex in 2H20F.
  • Reiterate ADD with SOP-based S$1.85 Target Price, pegging iFast Corporation to 0.5 s.d above mean of 26x CY21F P/E and S$100m paid-up capital for the DWB licence.

iFast's 2Q20 earnings a beat due to stronger stockbroking volumes

  • iFast Corporation (SGX:AIY)'s 2Q20 net profit hit a quarterly high of S$4.5m (+25% q-o-q, +85% y-o-y) due to higher stockbroking transaction volumes. See iFast Announcements This came mainly from the B2C segment in Singapore from elevated digital account openings and DIY trading during the circuit breaker period.
  • iFast Corporation's 1H20 net profit was at 65% of our FY20 estimates. As 2Q20 revenues (flattish q-o-q, +26% y-o-y) were driven by stocks and ETFs, the reduction in fees paid to financial advisors (-5% q-o-q, +31% y-o-y) resulted in the earnings beat.
  • Regionally, net profit from HK slipped 45% q-o-q (+3% y-o-y) in 2Q20, but this was offset by a doubling in profit from Malaysia. Losses in China stabilised y-o-y as growth in assets under administration (AUA) gains traction.
  • iFast Corporation announced interim DPS of 0.75 Scts in 2Q20. See iFast Dividend History.

We expect growth in higher-margin unit trusts to sustain revenues

  • Overall AUA rose 23% q-o-q to S$11.2bn on the back of a record-high net inflows of S$1.25bn in 1H20 (FY19: S$976m, FY18: S$786m). As stocks and ETFs (transactional in nature and non-recurring) drove AUA growth in 2Q20, iFast Corporation’s proportion of recurring net revenue to total revenue dipped to 72% in 1H20 (from 81-85% over FY15- 19).
  • As management expects transaction volumes to sustain through 2H20 amid buoyant financial markets, this proportion may continue to hover at current levels. That said, we believe that iFast Corporation’s cornerstone product of higher-margin (and recurring) unit trusts will continue to provide a steady stream of recurring revenue when risk-on sentiments abate.

Investments in staff and IT infrastructure to raise FY20F opex

  • iFast Corporation will be capitalising on its strong 1H20 growth performance by investing in local headcount, IT spending and performance-based remuneration; thus it raised its FY20 opex guidance to S$63.4m-64.9m (from S$59.9m-61.4m), but we expect this to be offset by an estimated S$3m (in FY20F) from the government’s jobs support scheme.
  • Award of a digital wholesale banking (DWB) licence could raise opex by an additional 9-11% in FY22F.
  • iFast Corporation remains well capitalised, with S$42.5m net cash as at end-2Q20.

Reiterate Add, with a higher SOP-based Target Price of S$1.85

Andrea CHOONG CGS-CIMB Research | Caleb PANG Huan Zhong CGS-CIMB Research | https://www.cgs-cimb.com 2020-07-23
SGX Stock Analyst Report ADD MAINTAIN ADD 1.85 UP 1.650