iFAST Corporation 1Q21 - UOB Kay Hian 2021-04-26: Scaling Up On Growing AUA

IFAST CORPORATION LTD. (SGX:AIY)

iFAST Corporation 1Q21 - Scaling Up On Growing AUA

Earnings for fintech firm iFAST are scaling up from positive operating leverage. 1Q21 net profit of S$8.8m (+143% y-o-y) accounted for 24% of our 2021 estimate. Overall AUA has grown to S$16.1b (+69% y-o-y, +11.5% q-o-q), benefitting from the positive momentum in net inflows of client assets.
We remain positive on iFAST amid the strong momentum going forward, supported by tailwinds from several new growth avenues. Maintain BUY with a target price of S$7.96.

Assets under administration (AUA) have been growing well in the last few quarters for iFAST Corporation (SGX:AIY). Singapore remains a key market, constituting 69%, or S$11.1b, of overall AUA. The country’s AUA grew 79% y-o-y and 11% q-o-q on strong momentum in both the business-to-business (B2B) and business-to-consumer (B2C) divisions, across all financial products.

Profitability of iFAST continued to improve on higher margins. For 1Q21, net revenue rose 51.4% y-o-y to S$28.5m, while EBIT and net profit scaled up at a faster pace of 140.7% and 142.5% to S$10.3m and S$8.8m respectively. Correspondingly, EBIT margin (based on net revenue) and net profit margin expanded to 36.1% (+12.8ppt y-o-y) and 15.9% (+6.5ppt y-o-y).
The positive operating leverage is expected to be maintained going forward as AUA continues to grow, given that the increase in net revenue generated will outpace operating expenses. iFAST's interim dividend for 1Q21 was raised by 33% to S$0.01.

iFAST is well positioned to capture the shift towards digitalisation in the wealth management industry, which hastened following the COVID-19 pandemic. The longer-term structural dynamics are favourable to iFAST as the percentage of managed wealth in Asia grows. This will be driven mainly by China, as financial markets there continue to open and help spur growth in the Asian wealth management industry.

As iFAST continues to achieve higher AUA, it will be able to gain further operating scalability, as net revenue margin and earnings profitability get lifted. As initial ramp-up and major development costs have been incurred in its key markets in the past years, growth in operating expenses is expected to be lowered to high single-digits from the double-digit range during the forecast periods.

In Mar 2021, iFAST launched its stockbroking service in Malaysia. This has helped strengthen the group’s position as a multi-asset investment platform to move towards the objective of a holistic fintech platform. While AUA stemming from Malaysia is still small at S$1.5b (9.3% of overall AUA) as at 1Q21, it is expected to gain as iFAST continues to invest in building up an integrated wealth management platform via more financial products.
Also, iFAST is awaiting contract details to be finalised for the eMPF platform in Hong Kong, which is expected to contribute to 2021 earnings.

Maintain BUY on iFAST with DCF-based target price of S$7.96. As a high percentage of iFAST’s revenue is recurring in nature, we are of the view that future free cash flows and the long-term growth rate are relatively sticky. Our DCF assumptions comprise a WACC of 7.0% and a terminal growth rate of 3.0%.
We note that the 2021 P/E valuation may appear elevated as iFAST is currently in a high earnings growth phase. At our target price of S$7.96, iFAST would be trading at an implied 58.9x 2022F P/E.
See

Clement Ho UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-04-26

SGX Stock Analyst Report BUY MAINTAIN BUY 7.960 SAME 7.960