iFAST Corporation - CGS-CIMB Research 2021-04-23: Rising In Strength; Upgrade To ADD

IFAST CORPORATION LTD. (SGX:AIY)

iFAST Corporation - Rising In Strength; Upgrade To ADD

iFAST's 1Q21 net profit was a beat due to robust stock and ETF trading volumes.
Net inflows of S$1.3bn in 1Q21 were a record high, driving iFAST's AUAs +12% q-o-q. We think AUAs have reached critical mass, spurring better operating margin.
iFAST has recorded sequentially higher q-o-q net profit since 2019. We think sales volumes will sustain as regional operations scale up. Upgrade to ADD.

iFAST Corporation (SGX:AIY) posted 1Q21 net profit of S$8.8m (+29% q-o-q, +143% y-o-y). See iFAST's announcements. This was 23%/5% above our/consensus full-year estimate; net revenue beat our estimate by 11% on the back of robust B2C trading volumes.
Opex was relatively contained, driving operating margins higher to 18.6% in 1Q21 (FY20: 15.2%). 1Q21 core net profit formed 30%/26% of our/consensus FY21 estimates.
iFAST declared interim dividend of S$0.01 per share (1Q20: S$0075), and guides for a y-o-y rise in FY21F dividend. We expect total dividend of S$0.065 per share in FY21F. See iFAST's dividend history.

AUA balances rose to S$16.1bn at end-Mar 21 (+11.5% q-o-q, +69% y-o-y). By geography, the growth came mainly from Singapore and Malaysia.
Hong Kong and China recorded sequential net revenue growth, but seasonally higher opex in HK and expansion costs in China had dinged net profit.

Stocks and ETFs remain as iFAST’s strongest growth segment, sustaining its ~30% (and above) q-o-q rise for the 4th consecutive quarter. On balance, this was supported by average daily value traded on the SGX of ~S$1.5bn in 1Q21 vs ~S$1.4bn in FY20. Consequently, the proportion of recurring net revenue (to total net revenue) dipped to ~64% in 1Q21 (~81-85% in FY16-20). We do not view this too negatively at present, but expect this proportion to trend upwards in step with any slowdown of trading volumes.

Business momentum in both B2B and B2C segments stayed strong. By product, growth was broad-based. Under the B2B segment, iFAST’s wealth advisory — iFAST Global Markets — is gaining in stocks and ETFs to all clients. This follows its initiative of offering flat commission rates (S$10) on SGX for clients with higher AUA in 2017. iFAST’s AUAs in Singapore rose 11% to S$11.1bn in 1Q21.

Although net revenue held steady q-o-q at S$5.2m in 1Q21, net profit dipped with PCCW, management suggested that more information on the revenue and costs involved will be made known in 2Q-3Q21.

The B2B and B2C segment saw US and Hong Kong stock exchanges in due course.
We understand that the Fintech solutions segment has been engaging with new clients from asset management companies and governmental bodies.

iFAST launched its first private fund in Feb 21. The private fund employs a fund of funds momentum in the past year, and believes that the industry’s push towards favouring mutual funds will benefit its business.
Losses in China rose slightly to S$1.4m in 1Q21 (4Q20: S$1.3m loss, 1Q20: S$1.1m loss).

Upgrade iFAST to ADD from Hold as we raise FY21-22F EPS forecast by 25-33%, factoring in higher stock and ETF trading volumes amid reaching critical mass in total AUAs (which drives stronger operating margins). iFAST had recorded sequentially higher q-o-q net profit since 2019; we expect this to continue on steady net revenue growth (we factor in ~6% q-o-q, the average in FY17-20) as market exuberance stabilises.
We raise iFAST's target price to S$8.00, based on P/E (2 standard deviation above mean), given iFAST’s robust growth profile.
See iFAST Share Price; iFAST Target Price; iFAST Analyst Reports; iFAST Dividend History; iFAST Announcements; iFAST Latest News.

Andrea CHOONG CGS-CIMB Research | https://www.cgs-cimb.com 2021-04-23

SGX Stock Analyst Report ADD UPGRADE HOLD 8.00 UP 5.670