iFAST Corporation - UOB Kay Hian 2020-10-26: 3Q20 Results In Line; Solid AUA Growth; Downgrade To HOLD


iFAST Corporation - 3Q20 Results In Line; Solid AUA Growth; Downgrade To HOLD

  • Fintech firm iFAST’s 3Q20 net profit (+151% y-o-y) reached another quarterly peak on strong growth in AUA to a record S$12.59b. Management reaffirmed its AUA target of S$100b in 2028.
  • We are downgrading iFAST to HOLD as current iFAST's share price offers less than a 10% upside to our target price of S$3.34.

iFAST's 3Q20 results in line.

  • Fintech wealth management platform iFAST Corporation (SGX:AIY) bagged another record quarterly net profit in 3Q20 with net profit of S$6.2m (+151% y-o-y), mainly due to the strong growth in assets under administration (AUA).
  • iFAST's 9M20 net profit was S$14.3m (+120% y-o-y), or 68% and 84% of our and consensus full-year forecasts respectively.

AUA at record S$12.59b.

  • Net inflows of client assets were S$1.07b in 9M20, with 60.5% stemming from unit trusts. This pushed iFAST’s AUA to above our estimate, at a new high of S$12.59b (2Q20: S$11.15b, 4Q19: S$10b), attributed to the accelerated digital adoption in the wealth management industry.
  • During iFAST's analyst briefing, management reaffirmed its AUA target of S$100b in 2028.

Rising operating leverage.

  • The higher AUA helped net an impressive 33.3% y-o-y jump in 3Q20 revenue to S$45m, while commissions and fees paid rose at a slower 30.8% y-o-y. This resulted in net revenue margin expansion to 50.8% (+0.9ppt y-o-y, -0.6ppt q-o-q).
  • Furthermore, improved operating leverage was achieved as staff cost (+25.5% y-o-y) was well under control, resulting in better EBIT margin of 16.5% (+8.2ppt y-o-y, +1.6ppt q-o-q).

Interim dividend.

  • On the back of strong operating cash flow generation, iFAST raised its interim dividend to 0.8 cent/share (3Q19: 0.75 cent), bringing 9M20 dividend to 2.3 cent (9M19: 2.25 cent). However, management cited that dividend payout ratio could reduce going forward as it works to retain sufficient capital should expansion is needed. See iFAST's dividend history.

Continued top-line expansion from growing AUA.

  • iFAST has consistently captured the demand for wealth management as the percentage of managed wealth in Asia grows. The COVID-19 pandemic may have played a role in hastening the shift towards digitalisation in the wealth management industry. The trend is set in motion and we believe it will continue as Asian economies recover towards growth territory.

Gross and operating margins to improve.

  • As iFAST continues to scale up and achieve higher AUA, we believe it will be able to gain further operating scalability, inching gross and EBIT margin upwards. Furthermore, initial ramp-up and development costs have been incurred in its key markets, and management has guided that growth in operating expense would be lowered to high single digits from the double-digit range in the last few years.

Downgrade to HOLD

  • Downgrade iFAST to HOLD with unchanged target price of S$3.34, pegged to 40.3x 2021F PE, or 2SD above its 5-year mean.
  • We are downgrading iFAST to HOLD as current iFAST's share price offers less than a 10% upside to our target price. We believe the elevated valuation at 40.3x is justified, given that:
    1. Asia’s wealth management industry is undergoing a sustainable record growth phase; and
    2. earnings for iFAST are beginning to scale up from operating leverage on higher revenues and a slower growth in expenses.
  • See iFAST Share Price; iFAST Target Price; iFAST Analyst Reports; iFAST Dividend History; iFAST Announcements; iFAST Latest News.
  • Entry price is S$3.04.
  • Price catalysts:
    • Winning the bid for Hong Kong retirement fund system or award of digital banking licence by MAS.
    • Stronger-than-expected AUA growth.

Clement Ho UOB Kay Hian Research | https://research.uobkayhian.com/ 2020-10-26
SGX Stock Analyst Report HOLD DOWNGRADE BUY 3.340 SAME 3.340