iFAST Corporation - DBS Research 2020-10-23: Moving Into A New Paradigm


iFAST Corporation - Moving Into A New Paradigm

  • Another strong set of results; iFAST's 3Q20 net profit surged 156% y-o-y, above expectations.
  • Obtaining operating leverage; PBT margin improved to 28.3%.
  • iFAST's AUA grew 25.9% YTD and 33.3% y-o-y. Singapore market continues to shine; China still loss-making.

iFAST 3Q20 Results highlights

Strong surge in 3Q20 net profit.

  • iFAST (SGX:AIY)'s 3Q20 net profit grew 156% y-o-y to a record high of S$6.2m. See iFAST Announcements. This was achieved on the back of a 33% y-o-y increase in net revenue to S$45m. On a 9-month basis, net profit of S$14.3m accounts for 78% of our FY20F forecasts, above expectations.
  • iFAST's recurring net revenue accounts for 76% of the total 9-month net revenue, vs about 80% last year, mainly due to the increase in non-recurring segment including stocks and ETF, though the recurring portion is still growing at a healthy rate.
  • A third interim dividend of 0.80 Scts was declared (0.75 Scts in 3Q19). See iFAST Dividend History

Obtaining operating leverage; PBT margin improved to 28.3%.

  • iFAST’s profit before tax (PBT) margin as a percentage of net revenue increased to 28.3% in 9M20 from 17.0% in 2019. This shows the positive operating leverage and scalability of the Group’s business model.

Strong growth from key markets; China operation still loss-making.

  • iFAST's key markets Singapore registered strong growth of 91% y-o-y for 9-month net profit while Hong Kong saw a 44% increase.
  • Continued loss seen in the China operation; with 3Q20 net loss of S$1.28m, similar to the S$1.23m incurred in 3Q19. We expect this trend to continue at least till FY22F or beyond.

AUA grew 25.9% YTD and 33.3% y-o-y.

  • iFAST’s assets under administration (AUA) grew 25.9% YTD and 33.3% y-o-y to a record S$12.59bn as at 30 September 2020. Of the net inflows of S$1.07bn, 60.5% came from unit trusts.

Growth in both B2C and B2B businesses.

  • The improvement in the Group’s business shows that iFAST continues to be a beneficiary of increased digital adoption in the wealth management industry. Both the B2C and B2B businesses registered growth. B2C, which accounts for 37% of the total net revenue, grew at a faster rate of 48.5% y-o-y for 9M20, vs 17.7% for the B2B segment.

iFAST - Outlook, Earnings and Recommendation

Sustainable industry growth.

  • Singapore’s wealth management industry is undergoing a sustainable growth phase. Total assets under management (AUM) grew 15.7% to reach S$4.0tr as at end-2019. Over the last five years, the industry’s AUM expanded at a CAGR of 11%. For the retail investment funds, the total collective investment scheme in Singapore grew to S$128bn, up 28% y-o-y and 12% on a 5-year CAGR basis. iFAST is set to benefit from the industry’s growth.

Operating leverage from a scalable business model.

  • The growth in 3Q20 net profit (+156% y-o-y) was substantially higher than the growth in revenue (+33% y-o-y). iFAST has just started to reap the fruits of its labour. In the last few years, the Group has been expanding its range of products and services, both in breadth and in depth. Its scalable platform business enables iFAST to scale up without a proportionate increase in cost.
  • The pace of increase in operating expenses is expected to moderate to 6.8-9.5% y-o-y in 2020, from the double-digit increase in the last few years. We expect the increase in revenue to more than offset the pace of rising costs.

Maintain BUY on iFAST with higher target price

  • Given the strong growth in AUA YTD and y-o-y, we have raised our AUA growth assumption to 20% for FY20F-FY22F, from 15% previously. iFAST's earning forecasts for FY20F/FY21F are raised by 9%/6% accordingly.
  • Our revised target price is still based on the Dividend Discount Model (DDM) methodology. Besides the higher earnings, we have used a lower WACC of 6.8% vs 7.3% after factoring in a lower market return. We have also raised the terminal growth assumption to 4.5% from 4%, given the strong growth in iFAST’s AUA, and also the wealth management industry as a whole.
  • See iFAST Share PriceiFAST Target PriceiFAST Analyst ReportsiFAST Dividend HistoryiFAST AnnouncementsiFAST Latest News

Potential catalysts.

  • Digital bank licence. iFAST is bidding for a digital bank wholesale licence (DWB) in Singapore. The licence is expected to be awarded by the end of this year. If the DWB licence application is successful, iFAST expects to launch its digital banking services by the end of 2021.
  • Hong Kong eMPF project. iFAST is also working with Hong Kong-listed PCCW for the project to digitise the existing Mandatory Provident Fund (MPF) Platform that operates under a decentralised landscape. The eMPF Platform project is expected to comprise a two-year implementation period and a seven-year operation /maintenance period. The contract is subject to extension for a minimum of one year up to a maximum of three years.

Lee Keng LING DBS Group Research | https://www.dbsvickers.com/ 2020-10-23
SGX Stock Analyst Report BUY MAINTAIN BUY 3.96 UP 2.600