iFAST Corporation - UOB Kay Hian 2021-03-22: Gaining Traction With The Rise In AUA; Upgrade to BUY


iFAST Corporation - Gaining Traction With The Rise In AUA; Upgrade to BUY

  • iFAST's AUA growth was strong in 2020, catalysed by the shift towards digital adoption in the wealth management industry. The anticipated strong AUA growth will be supported by the positive momentum in net inflows of client assets. There are several new growth avenues that iFAST has laid out the operational roadmap for, with its main goal being to provide a holistic financial solutions product.
  • Upgrade iFAST to BUY after changing our valuation methodology. Target price: S$7.96.

iFAST's AUA growing well.

  • Assets under administration (AUA) have been growing well in the last few quarters for iFAST Corporation (SGX:AIY), both in its business-to-business (B2B) and business-to-consumer (B2C) segments. This was helped by the shift towards digitalisation in the wealth management industry, which was hastened by the COVID-19 pandemic.
  • As at end- 20, iFAST’s AUA grew to S$14.45b, a 44.5% jump y-o-y and 14.8% q-o-q, which was the main driver for positive operating leverage.

Increased adoption of digitalisation.

  • iFAST has benefitted from the shift towards digitalisation in the wealth management industry. As a result of many years of investment to improve iFAST’s fintech platform and the addition of new products and services, iFAST has been gaining traction in expanding its market share.

Several new growth avenues.

  • In Sep 20, iFAST obtained the private fund manager licence in China, as well as the securities dealing licence in Malaysia. These licences allow the group to expand its suite of services, such as discretionary portfolio management and equity dealing services in the two countries, with the objective of providing a more holistic financial solutions product to customers.

Awaiting eMPF platform contract details.

  • Additionally, iFAST is part of the consortium led by PCCW Ltd that was awarded the eMPF platform contract by Hong Kong’s Mandatory Provident Fund Schemes Authority in Jan 21. As a sub-contractor, iFAST will provide pension administration services for the eMPF platform, similar to that of their current scope for Singapore’s Central Provident Fund Board.
  • While contract details have not been finalised and financial details are not penned in at this stage, we believe post implementation of the platform, iFAST will benefit from greater visibility and outreach in the competitive Hong Kong market.

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.

Upgrade iFAST to BUY with target price of S$7.96.

  • No changes to our estimates.
  • We have changed our valuation methodology from forward P/E to DCF, thereby raising our target price from S$5.12 to S$7.96.
  • See iFAST Share Price; iFAST Target Price; iFAST Analyst Reports; iFAST Dividend History; iFAST Announcements; iFAST Latest News.
  • As iFAST’s business model has a high percentage of sales that are recurring in nature, we are of the view that future free cash flows are relatively sticky. In addition, forward earnings are currently in a high growth phase due to the scaling up of AUA and positive operating leverage, and hence, current forward P/E valuation may appear elevated.
  • At fair value of S$7.96, iFAST would be trading at an implied 49.2x 2022F PE.
  • Catalyst to iFAST Share Price: Stronger-than-expected AUA growth.

Clement Ho UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-03-22
SGX Stock Analyst Report BUY UPGRADE SELL 7.96 UP 5.120