IFAST CORPORATION LTD. (SGX:AIY)
iFAST Corporation - Strong Growth Momentum; Catalysts In Place For Higher Growth Ahead
- We maintain our positive view on iFAST Corporation (SGX:AIY) despite the recent stellar performance of iFAST's share price, which we believe, was mainly driven by
- the anticipation of the contract win for the Hong Kong pension fund project;
- the solid AUA growth for FY2020, and
- the digitalization trend accelerated by COVID-19.
- Our positive view is premised on:
- More room for AUA growth – iFAST’s market share in its key market, Singapore is still small while China market offers ample opportunities.
- Scalable business model – iFAST has already built a scalable platform and is now reaping the fruit of its labour.
- AUA growth momentum to outpace industry – AUA for iFAST grew at a 2-year CAGR (FY18-FY20) of 34%, vs 10% from FY17-FY19 for the industry.
Why the strong surge in iFAST's share price recently?
- iFAST's share price staged a stellar performance year-to-date, up a whopping 72%. iFAST was one of the few stocks with market capitalisation of above S$1bn to register such strong gains in less than a month. Besides the market risk-on momentum for equities, especially the small-to mid-caps, we believe the other reasons are as follows:
1) Anticipated contract win for the Hong Kong pension fund project
- To recap, iFAST is one of the two finalists shortlisted to digitise the Hong Kong retirement funds system, paving the way for lower fees for more than four million savers.
- The Mandatory Provident Fund Schemes Authority (MPFA) is seeking to update its systems by creating an electronic platform that will centralise the data of its 4.3m members by 2022. The goal is to allow users to consolidate multiple accounts, switch between plans and to lower fees. The centralised platform operator would be able to generate fee income from the MPFA platform.
- Among the two finalists is a consortium led by Oneconnect Financial Technology – backed by Ping An Insurance Group, and working with a French technology partner, Atos. The other player is a group led by PCCW, and iFAST is their technology partner.
What is iFAST’s chance of winning this project?
- We believe iFAST has a relatively high chance of winning this project, given its expertise in building online trading platform. iFAST has built its FSMOne platform that the group has in Singapore a few years back, where users just need to have one account to trade multiple products. iFAST was also involved in a similar platform for The Employees Provident Fund (EPF) in Malaysia and is also the investment administrator for The Central Provident Fund Board in Singapore.
- The other contender, a consortium led by Oneconnect Financial Technology and backed by Ping An Insurance Group, is working with Atos, a French multinational information technology service and consulting company and has offices worldwide. It specialises in hi-tech transactional services, unified communications, cloud, big data and cybersecurity services.
- The contract period of 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 and up to a maximum of three years. The winner is expected to be announced soon.
Potential contribution to iFAST could be in excess of S$10m, > 50% of our projected earnings for FY20F if it wins the contract.
- There are no details on this potential contract. We assume iFAST could get a cut of the fee income. As at June 2020, MPFA had net assets worth HK$967.8bn. Based on a 20-basis point calculation, this works out to ~HK$2bn (S$357m) per year. Assuming if iFAST gets a 3-5% cut of the fee income, contribution to bottom line could be in excess of S$10m in the medium term.
What happen if it fails to get the contract?
- Our current earnings forecasts have not factored in this potential win. Based on iFAST’s organic growth and its scalable business model, we project earnings growth of 41% in FY21F and another 30% in FY22F even without this contract.
- In terms of iFAST's share price performance, there could be some knee-jerk reaction if iFAST fails to clinch the contract. Based on its previous incident on the failed attempt to secure the digital bank licence in Singapore, iFAST's share price tanked 30% in one day but surged to a new high in about a month’s time.
2) iFAST reported solid growth in FY20 AUA
- iFAST’s AUA as at 31 December 2020 has reached another record high level of S$14.45bn, up 44.5% y-o-y and +14.8% on a q-o-q basis, exceeds our forecast of S$12bn (+20% y-o-y). AUA were up across all core markets, with Singapore, which contributed the lion’s share of 69.2% to total AUA, taking the lead. The AUA of the Singapore operation grew 52.8% y-o-y reaching a milestone of S$10bn.
- In terms of products breakdown, unit trust continues to be the key contributor of iFAST’s wealth management business. As at 31 December 2020, the unit trust AUA grew 31.8% y-o-y and accounted for 75.4% of the overall group AUA. Contribution from the Stocks & ETFs segment further increased to 12.9%, from 11.1% in 3Q20 and 6.1% in 4Q19. We expect this growth momentum in AUA to continue going forward, and project AUA growth of 30% in FY21F and 20% in FY22F.
3) The digitalisation trend accelerated by COVID-19
- With the onset of the COVID-19 pandemic, the transaction value jumped in 1Q20. The surge was even more prominent for the B2C segment, with a doubling of total sales, excluding the switching of funds. This uptrend is to be intact going forward.
Remain positive on iFAST, with or without the HK project
- Our positive view on iFAST is premised on:
1) More room for growth; market share still small in Singapore while China offers ample opportunities
- We believe that there is still room for growth in its key Singapore market as the current AUA level remains low, at about 10% of the ~S$128bn in Assets Under Management (AUM) of the collective investment schemes in Singapore, which is the retail investment funds. Singapore contributes close to 70% of iFAST’s total AUA.
- In China, iFAST is still in the early stages of building its brand among potential clients and investment practitioners in the wealth management space. The outlook could be promising once the group starts to reap the fruits of its labour in China.
- Elsewhere, other markets including Hong Kong and Malaysia, earnings have been trending higher in the last few years.
2) iFAST has already built a scalable platform
- Over the years, iFAST has built a scalable platform, with the range of products and services growing in both depth and width. Furthermore, once iFAST achieves operational efficiency, especially once its China operation becomes profitable, this should be more apparent.
- In recent years, recurring net revenue-to-AUA has been lower than the operating expense-to-AUA, as costs remained high in the last few years – as the group beefed up its platforms, with its China operation still incurring losses. This trend is expected to reverse once iFAST grows in scale and its China operation becomes profitable, likely from FY22F onwards.
3) AUA growth momentum to outpace industry
- iFAST is now reaping the fruits of its labour. AUA has been growing steadily over the past few years, especially in the last two years. AUA for iFAST grew at a 2-year CAGR (FY18- FY20) of 34%, vs 10% from FY17-FY19 for the industry. With the expanding range of products and services, coupled with the boost from COVID-19 that helped to accelerate to rate of digital adoption, we expect AUA to grow 30% in FY2021 and another 20% in FY2022F.
- We continue to expect iFAST to grow faster than the industry, riding on its scalable business model and expanded product range.
iFAST - Earnings & Recommendation
Revised earnings up on strong AUA growth momentum.
- On the back of the strong AUA growth and after factoring in the record AUA in 2020, we now project iFAST's AUA to grow 30% in FY21F, followed by another 20% in FY22F, vs our previous growth assumption of 20% each in FY21F and FY22F. As such, our iFAST's earnings forecast for FY20F/21F/22F is raised by 3%/26%/36%.
Maintain BUY with higher target price of S$6.40.
- Our new target price of S$6.40 (S$3.96 previously) is still based on the Dividend Discount Model (DDM) valuation methodology given that it is a cash-led business. iFAST has been paying at least 60% dividend payout ratio (excluding losses from China) since its listing at end-2014. See iFAST's dividend history. Its cash and near cash equivalents of ~S$32.5m as at end-September 2020 is more than sufficient to support dividend payout of ~S$18m for FY20F.
- The higher target price is mainly due to the higher earnings projections and also higher terminal growth assumption of 5% vs 4.5% previously.
- See iFAST Share Price; iFAST Target Price; iFAST Analyst Reports; iFAST Dividend History; iFAST Announcements; iFAST Latest News.
Expect strong 4Q20/FY20 results.
- We expect iFAST to report a strong set of 4Q20/FY20 results, on the back of the solid AUA growth momentum. We project iFAST's 4Q20 revenue and net earnings to grow 48% and 115% y-o-y respectively (+11% and 3% q-o-q respectively).
- iFAST's FY20 results is expected to be released after market close on 5 February 2021.
Lee Keng LING
DBS Group Research
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https://www.dbsvickers.com/
2021-01-28
SGX Stock
Analyst Report
6.40
UP
3.960
