iFast Corporation - CGS-CIMB Research 2020-08-28: Too Fast, Too Furious


iFast Corporation - Too Fast, Too Furious

  • iFast (SGX:AIY)’s collaborations with top-tier digital players in bidding for high-profile government contracts and licenses entrench its franchise value in the region.
  • We up FY20-22F EPS for higher stock trading volumes and lower opex from government grant. iFast has outperformed the FSSTI by c.117% since Jun.
  • At 35x FY21F P/E, we think SG digital bank license optimism and HK digital pension system bid have been priced in. Downgrade iFast to HOLD.

Share price up 24% since HK digital pension system news

  • iFast's share price has risen c.24% since the announcement of being shortlisted as 1 of 2 reported consortium finalists to digitise and centralise Hong Kong’s (HK) pension system (e-MPF) in Aug 20. The PCCW-led consortium (includes iFast and possibly several other parties) is vying with Ping An Insurance’s OneConnect for the project.
  • The HK government is committing HK$3.4bn in public funding for e-MPF development, and its operator will receive fees based on the system’s total MPF assets (c.S$177bn). Bloomberg reports that the current bids are c.20-35bp in fees, or c.S$353m-600m in revenue per year. Shareholding details have not been disclosed, but we think it is reasonable to consider iFast would hold a 10-30% stake in the consortium in our scenario analysis.
  • Using the mid-range point of c.28bp in fees, a successful bid could add c.S$4m-11m in yearly net profit to iFast, increasing EPS by 1-4Scts.

Adding a feather to its multi-asset cap in Malaysia

  • In Aug 20, iFast obtained approval-in-principle from Malaysia’s (MY) Securities Commission to commence stockbroking operations in early-2021 — it already has stockbroking businesses in Singapore (SG) and HK. Stockbroking has not traditionally been a key growth driver for iFast given lower margins (i.e. 8bp per trade) and stiff competition (ultra-low/zero fees) in this space. We think a c.6-9-month operational ramp-up period should be expected prior to meaningful earnings contribution, but elevated trading volumes across the region (due to extended work-from-home initiatives) should offset this.
  • In Singapore, the daily average securities trading volume rose 40% y-o-y to 1.7bn in Jul 20 while monthly traded volumes on Bursa Malaysia rose 389% y-o-y to 237bn units in Aug 20.
  • Recall that iFast's 1H20 net revenues jumped 23% y-o-y on stronger trading activity amongst retail investors – a trend we expect to continue as workers stay home.

Expect greater AUA growth in Malaysia from stockbroking operations.

Extended Jobs Support Scheme (JSS) helpful in offsetting higher opex.

  • See PDF report attached for complete analysis.

Downgrade to HOLD as market exuberance prices in e-MPF and DWB

  • See iFast Share Price; iFast Target Price; iFast Analyst Reports; iFast Dividend History; iFast Announcements; iFast Latest News.
  • Now trading at 35x FY21F P/E, we opine that market exuberance has substantially priced in iFast's potential win of the e-MPF bid in HK and the digital wholesale banking (DWB) licence in Singapore; the projected announcement timeline for both prospects are by end-20. As such, we downgrade iFast from Add to HOLD, but with a higher SOP-based Target Price of S$2.44 as we factor in incremental stockbroking revenue growth from sustained trading volumes and the scaling up of MY operations, as well as the extension of government jobs support aid in FY20-21F.
  • Our Target Price is pegged to 1 s.d. above its 5-year mean at 30.6x FY21F P/E and includes minimal book value of a DWB licence operator of S$100m.

Andrea CHOONG CGS-CIMB Research | Caleb PANG Huan Zhong CGS-CIMB Research | https://www.cgs-cimb.com 2020-08-28
SGX Stock Analyst Report HOLD DOWNGRADE ADD 2.44 DOWN 1.850