iFAST Corporation - CGS-CIMB Research 2020-10-23: Beneficiary Of The Work-From-Home Norm


iFAST Corporation - Beneficiary Of The Work-From-Home Norm

  • iFAST's 3Q20 net profit of S$6.2m was a consecutive quarterly high, as supported by aggressive unit trust sales (before commissions lapse) and DIY home investors.
  • iFAST's AUAs rose 13% q-o-q to S$12.6bn, propelled by record high net inflows of S$1.1bn; c.61% of these were unit trusts. Stocks & ETFs made up most of the rest.
  • Reiterate HOLD on iFAST. Stockbroking-led growth likely to normalise; digital wholesale banking (DWB) priced in.

Falling back on strong growth in its core product of unit trusts

  • iFAST Corporation (SGX:AIY) recorded core net profit of S$6.2m in 3Q20 (+36% q-o-q/+151% y-o-y) on the back of significant AUA net inflows of S$1.1bn during the quarter (FY19: S$2bn). 9M20 core earnings formed 87% of our full-year forecast.
  • Notably, most of the net inflows (c.61%) stemmed from a rebound in unit trust sales in Singapore due to aggressive marketing by financial advisors prior to the regulatory-led lowering of the sales charge cap on unit trusts sold under the CPF Investment Scheme from 1.5% to 0% on 1 Oct 20.
  • Stockbroking transactions (largely DIY B2C investors) contributed most of the remaining net inflows, although 3Q20 growth momentum moderated as Singapore’s circuit breaker was lifted in 2Q20.

Regional demand driven by eased movement restriction orders

  • iFAST's net profit in Hong Kong rebounded +88% q-o-q in 3Q20, driven by stronger stockbroking volumes in the B2B segment as risk-off sentiments lifted.
  • Malaysia charted record quarterly gross sales following pent-up demand as Movement Control Order restrictions were eased.
  • Net revenue in China doubled to S$0.6m on better sales traction and a B2B-based portfolio launch, but remains loss-making.
  • We expect the gradual tapering of a spike in stockbroking volumes to restore iFAST’s recurring revenue stream (mainly from unit trusts) in due course from 76% in 9M20 to FY15-19’s c.81-85%.

Opportunities on the horizon

  • Business updates include an approval-in-principal for dealing securities in Malaysia and approval for a Private Fund Manager license in China. Management guides for significant revenue accretion to be a longer-term prospect as operations ramp up. Its bids for a digital wholesale banking (DWB) licence in Singapore (given iFAST’s domestic presence) and e-MPF operator in Hong Kong are more promising.
  • Potential fee income from the latter given the Hong Kong Monetary Provident Fund’s c.S$177bn asset base is a key re-rating catalyst, depending on the extent of iFAST’s role in the consortium. At this stage, we believe it to be a technical expertise provider given its experience in administrating CPF investments in Singapore.

Reiterate HOLD on iFAST with higher SOP-based Target Price

  • We raise iFAST's net profit forecast by 24-34% in FY20-22F on stronger AUA growth, benefitting from the increased sales traction from iFAST’s digital platforms. Our Target Price for iFAST is raised to S$3.41 as we roll over to FY22F, pegged to 1.s.d. above 5-year mean at 31.2x FY22F P/E, and includes S$100m minimal book value of a DWB licence operator.
  • See iFast Share Price; iFast Target Price; iFast Analyst Reports; iFast Dividend History; iFast Announcements; iFast Latest News.
  • We expect unit trusts to lead iFAST's (recurring and higher-margin) earnings accretion over the longer run as stockbroking volume growth normalises as more workers return to the office.

Andrea CHOONG CGS-CIMB Research | https://www.cgs-cimb.com 2020-10-23
SGX Stock Analyst Report HOLD MAINTAIN HOLD 3.41 UP 2.440