iFAST Corporation - UOB Kay Hian 2021-01-20: Strong Growth In Core Business Remains Intact


iFAST Corporation - Strong Growth In Core Business Remains Intact

  • AUA for fintech firm iFAST reached another record-high level of S$14.45b (+44.5% y-o-y) as at end-20, as funds administered grew across all core markets. This is expected to lift overall recurring revenue going forward.
  • iFAST's earnings are anticipated to benefit from improved operating leverage as expenses grow at a slower pace. We have a 3-year AUA CAGR estimate of 21.7% over 2019-22F.
  • Maintain HOLD on iFAST with higher target price. Entry price: S$4.65.

Robust growth in iFAST's AUA to record levels.

  • Amid the COVID-19 pandemic, the continued strong growth in assets under administration (AUA) for iFAST Corporation (SGX:AIY) has remained resilient. AUA hit another quarterly peak of S$14.45b (+44.5% y-o-y, +14.8% q-o-q), bolstered by growth across all core markets in Singapore (69% of AUA), Hong Kong (18%), Malaysia (9%), and others (3%) which consists of China and India.
  • In terms of product type, unit trusts continue to be the cornerstone of iFAST's business at 75% of overall AUA, followed by stocks & ETFs (12.9%), bonds (6.1%) and cash (5.6%). We believe that the pandemic has hastened the trend towards digital adoption in the wealth management industry, and is set to continue unabated.

Rising operating leverage.

  • In 9M20, iFAST’s growing AUA (end-Sep 20: S$12.59b, end-Dec 19: S$10.0b) was the main driver for the group’s expansion in profit margins. The 33.2% y-o-y rise in 9M20 revenue resulted in an EBIT and net profit growth of 120.3% and 119.9% respectively.
  • From 4Q19 to 3Q20 alongside the steady rise in AUA, iFAST's EBIT and net profit margins expanded from 9.6% to 16.5% and 8.9% to 13.7%, respectively. The positive operating leverage was from the relatively slower growth in its operating expenses.

Unsuccessful bid for digital wholesale bank license.

  • On the flip side, iFAST was unsuccessful in its bid for a digital wholesale bank license in Singapore. While this means that iFAST will not be allowed to take deposits from and provide banking services to SMEs and other non-retail customer segments, we believe that its core business proposition remains well intact.
  • Separately, iFAST is awaiting further updates in Hong Kong in relation to its tender to digitise the country’s retirement fund system. iFAST is among the minorities in a consortium led by Hong Kong-listed PCCW Ltd, which is up against another group led by Ping An Insurance’s OneConnect Financial Technology. The deal is expected to generate approximately US$4.8b in revenue for the winning consortium across a decade.

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 has been 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 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.

Upward revision on iFAST's earnings for 2020-22F.

  • We raise our iFAST's net profit estimates for 2020-22 by 47-54%. This is due to the higher-than-expected growth in AUA, which would lift iFAST’s revenue above our prior estimates by 20-27% over the forecast period.
  • Maintain HOLD with a higher target price pegged to 40.3x 2021F P/E, or 2 s.d. above its 5-year mean. This implies a PEG of 0.7 based on a 3- year CAGR of 56.1%. See iFAST Share Price; iFAST Target Price; iFAST Analyst Reports; iFAST Dividend History; iFAST Announcements; iFAST Latest News.
  • We believe iFAST has proven to be able to capture a portion of the growing wealth management industry in Asia, which would allow earnings to meaningfully scale up from operating leverage on higher revenues relative to the slower pace of growth in expenses.

Clement Ho UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-01-20
SGX Stock Analyst Report HOLD MAINTAIN HOLD 5.12 UP 3.340