iFAST Corporation - CGS-CIMB Research 2021-01-13: Keeping Up The Trading Momentum


iFAST Corporation - Keeping Up The Trading Momentum

  • We forecast iFAST (SGX:AIY) to report another quarter of record earnings in 4Q20F, with net profit rising 16% q-o-q/140% y-o-y on the back of robust AUA growth.
  • We think the uneven pace of regional economic recovery and hybrid work-from-home measures should support transaction volumes in FY21F, and normalise thereafter.
  • Reiterate HOLD on iFAST. Barring a market downturn, elevated AUA balances should sustain recurring revenues. Winning the e-MPF licence is a key catalyst.

iFAST as a beneficiary of the bullish market momentum

  • We believe that growth prospects for fintech and wealth management platform operators such as iFAST Corporation (SGX:AIY) will remain firm going into FY21F.
  • iFAST announced that its AUA balances stood at S$14.5bn as at end-20, a 44.5% y-o-y jump (vs ~5-24% p.a. over FY15-19) from S$10bn a year ago. We understand that the strong momentum came largely from market sentiments turning more bullish in the quarter, spurring investing trading volumes.
  • By product, unit trusts made up the bulk of the absolute increase (despite CPF sales charge capped at 0% by Oct 20, from 1.5%), while stocks and ETFs maintained their > 30% q-o-q growth rate (since 2Q20). Most of the AUA growth in 4Q20 stemmed from Singapore, as the pace in Hong Kong and Malaysia slowed.
  • Going into FY21F, we expect AUA growth volumes to be sustained by hybrid work-from-home/office arrangements (given the uneven pace of economic recovery and easing of movement control orders due to COVID-19), sustained market momentum and iFAST’s edge of an end-to-end digital platform (from onboarding of clients to executing trades), but for these growth trends to normalise from 2H21F onwards as investors and markets adjust to a new normal.
  • Both the SDAV and volume on the Singapore Exchange (SGX:S68) have trended higher in FY20 vs the preceding 2 years, and we see scope for these levels of investments and trading continuing into 1H21F. Using this as a proxy for AUA growth ahead, we forecast an elevated level of net profit ahead.

What to watch out for? Winning the e-MPF bid in HK

  • A key re-rating catalyst for iFAST is the successful bid (of PCCW’s consortium) to operate the e-MPF platform in Hong Kong. Potential fee income from handling the Mandatory Provident Fund’s asset base of over HK$1 trillion (~S$171bn) would depend on the extent of iFAST’s role in the consortium.
  • Apart from its expertise and experience in administrating the investments of members of Singapore’s Central Provident Fund, we do not rule out the possibility of iFAST’s role as a sub-contractor in the implementation of the platform, where fee income may be determined based on MPF investments processed via the platform. Timeline of the award by Hong Kong’s MPF Authority has not been announced.

Keeping a lookout for regional banking licences

  • iFAST was not awarded a digital wholesale banking licence in Singapore, but it does not rule out the possibility of putting in its bid once again when the MAS reevaluates candidates for the final wholesale banking licence. Note that the MAS had awarded two out of three available wholesale banking licences in Dec 2020. iFAST is also looking to submit its bid as a digital bank in regional markets; we look forward to more updates on this development in the coming earnings briefing.
  • We expect the roll-out of securities distribution in Malaysia by 1H21F, but a ramp-up towards meaningful revenue contribution may take time given iFAST’s experience in Singapore.
  • In China, iFAST launched its private fund managing (PFM) business early-2021 — we expect eventual contributions from this initiative to narrow losses from its Chinese operations, albeit only in the medium term.

We raise iFAST's FY20-22F net profit forecast by ~5-16% on elevated AUA balances

  • iFAST currently trades at 35x FY22F P/E, or 1.5 s.d. above its 5-year mean, pricing in hopes of strong earnings momentum. From our scenario analysis, our FY21-22F earnings growth projections of ~15-22% translate into 35- 43x FY21-22F P/E.
  • See iFAST Share PriceiFAST Target PriceiFAST Analyst ReportsiFAST Dividend HistoryiFAST AnnouncementsiFAST Latest News
  • We raise our target price to peg to 2 s.d. above its 5-year mean at 37x FY22F P/E, and reiterate our HOLD call as upside is capped by stretched valuations.  We raise iFAST's FY20-22F dividend estimates to 6.50 cents (from 3.20 cents) – representing an 81% payout ratio in FY20F (FY17-19: ~77-89%) and yield of 1.6%. See PDF report attached below for complete analysis.
  • While we anticipate sales volumes to sustain amid bullish market sentiments and iFAST’s digital edge, we think these trends may normalise as investors adjust to new normal practices while economies recover.
  • Our HOLD call is premised on the potential e-MPF operating licence win and potential earnings upside from AUM growth.

Andrea CHOONG CGS-CIMB Research | https://www.cgs-cimb.com 2021-01-13
SGX Stock Analyst Report HOLD MAINTAIN HOLD 4.15 UP 3.410