iFAST Corporation - CGS-CIMB Research 2021-02-09: DIY Investing In Full Force


iFAST Corporation - DIY Investing In Full Force

  • We think that steady retail investment appetite and sustained sales via wealth advisors will support iFAST's FY21-23F revenue growth at new normal levels.
  • Expect e-MPF contributions to begin in FY23F. Our scenario analysis yields an additional ~S$3m-24m in iFAST's annual net profit over the 7-year contract.
  • Reiterate HOLD. We think that the e-MPF contract win is priced in, and await more information on the fee-sharing structure with PCCW.

iFAST - New normal levels of revenue growth

  • iFAST Corporation (SGX:AIY) recorded core net profit of S$6.8m in 4Q20 (+11% q-o-q/+127% y-o-y) as trading momentum stayed firm, sustaining strong AUA inflows of S$1.9bn (+14.8% q-o-q/+44.5% y-o-y) during the quarter. See iFAST's announcements.
  • iFAST’s 4Q20 earnings were in line with consensus, but 5% lower than our forecast (FY20 was 98% of our forecast).
  • Although full-year opex rose 17% y-o-y on the back of higher staff bonuses, digital platform enhancements and costs for expanding in China, iFAST’s 32% y-o-y net revenue growth more than offset this.
  • Final dividend of S$0.01 was declared in 4Q20, bringing iFAST’s FY20 dividend to S$0.033 (43% payout ratio). See iFAST Dividend History.

AUA boost in FY20 came largely from DIY investors in stocks

  • To sum up, iFAST's strong AUA growth in FY20 was largely attributable to a surge in DIY (B2C) investment activity. While AUA growth of unit trusts (UTs) remained robust (+32% y-o-y to S$10.9bn), the leap in stocks and ETFs (+206% y-o-y to S$1.9bn) on the back of regional movement restriction orders was pivotal to FY20 revenue growth. To this end, the momentum of daily average volumes on SGX stayed strong in FY20 at ~1.8bn shares (FY19: ~1.2bn), higher than the preceding two years.
  • As a result of stronger (transactional) B2C growth, the proportion of iFAST's recurring net revenues to total net revenues slid to ~70% in FY20 – below the average ~81-85% recorded over FY16-19.
  • Singapore remains iFAST's key AUA growth driver; regional prospects promising. Read more in report attached below.

Scenario analysis: e-MPF could add S$3m-24m to iFAST’s annual net profit over FY23-29F

  • HK’s Mandatory Provident Fund Authority (MPFA) had awarded PCCW the blue-sky scenario analysis of iFAST’s service agreement with PCCW entails an additional ~S$10m in annual net profit during the 7-year maintenance period beginning FY23F assuming ~20bp (of HK$1tr MPF AUM) in annual fees, ~30% share in fees, and ~10% net profit margin. See report attached below for more information on the scenario analysis.
  • While a DCF valuation on our scenario analysis yields ~S$8.18 in fair value per share, note that limited information has been disclosed on the fee structure of this venture at present.
  • See iFAST Share Price; iFAST Target Price; iFAST Analyst Reports; iFAST Dividend History; iFAST Announcements; iFAST Latest News.

Reiterate HOLD with higher target price of S$5.67, pegged to 40x FY22F P/E

  • We raise iFAST's FY21-22F earnings forecast by ~12-26% as we price in new normal levels of quarterly revenue growth on the back of management’s confident outlook on net inflows.
  • Our target price for iFAST is raised to S$5.67, pegged to 40x FY22F P/E (2 s.d. above mean), which we believe to be reasonable given our expected ~16-42% y-o-y rise in FY21-23F net profit. We think that the e-MPF contract win has been priced in at this juncture, and await better entry levels.

Andrea CHOONG CGS-CIMB Research | https://www.cgs-cimb.com 2021-02-09
SGX Stock Analyst Report HOLD MAINTAIN HOLD 5.67 UP 4.150