iFAST Corporation - UOB Kay Hian 2021-02-09: 4Q20 Benefitted From Strong AUA Growth; Downgrade To SELL On Valuation

IFAST CORPORATION LTD. (SGX:AIY)

iFAST Corporation - 4Q20 Benefitted From Strong AUA Growth; Downgrade To SELL On Valuation

The strong AUA growth for fintech firm iFAST going forward will be supported by the positive momentum in net inflows of client assets. AUA 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 and the group benefitted from positive operating leverage.
Hong Kong eMPF contract details have not been finalised at this stage. However, valuations are expensive.
Downgrade iFAST to SELL.

iFAST Corporation (SGX:AIY)'s 4Q20 net profit jumped 127.5% y-o-y to S$6.8m on the back of positive operating leverage. See iFAST's announcements. This brought iFAST's 2020 earnings to S$21.2m (+122.3% y-o-y), which met our and street expectations.
For 2020, iFAST’s growing assets under administration (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. Additionally, operating expenses (+16.5% y-o-y) grew at a slower pace relative to net revenue (+31.7% y-o-y), which further lifted profitability. Management targets to keep growth in operating expenses in check going forward.

Amid the COVID-19 pandemic, the continued strength in AUA growth for iFAST has remained resilient. As at end-20, AUA hit a 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 and ETFs (12.9%), bonds (6.1%) and cash (5.6%).
We believe that the COVID-19 pandemic has hastened the trend towards digital adoption in the wealth management industry, and is set to continue unabated.

On the back of strong operating cash flow generation, iFAST raised its final dividend to S$0.01/share (4Q19: S$0.09/share), bringing full-year dividend to S$0.033/share (2019: S$0.0315/share). This is lower than our expectations, as dividend payout ratio was reduced from 89% in 2019 to 42% in 2020, to support future expansion plans. See iFAST's dividend history.

iFAST has consistently captured the demand for wealth management as its 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.

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.

On 29 Jan 21, the Mandatory Provident Fund Schemes Authority in Hong Kong awarded the eMPF platform contract to the consortium led by Hong Kong-listed PCCW Ltd, which also includes iFAST. The project has a 2-year implementation period to be completed by end-22, and a 7-year operation/maintenance period. It may also be extended for 1-3 years subsequently.
At this point, however, contract details are still being finalised and we have not incorporated the upcoming implementation fees that iFAST will receive from the eMPF contract.

No change to our earnings forecasts. Downgrade iFAST to SELL on valuation grounds.
See iFAST Share Price; iFAST Target Price; iFAST Analyst Reports; iFAST Dividend History; iFAST Announcements; iFAST Latest News.
Our unchanged target is based on a valuation peg of 40.3x 2021F P/E, or 2 s.d. above its 5-year mean. At current iFAST's share price, however, valuation for iFAST is expensive at 51.1x forward P/E. However, we note that earnings derived from the implementation of the eMPF platform have not been incorporated in our forecasts, given the lack of details at this stage.

Clement Ho UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-02-09

SGX Stock Analyst Report SELL DOWNGRADE HOLD 5.120 SAME 5.120