iFAST Corporation - DBS Research 2021-05-28: Betting On The Winner


iFAST Corporation - Betting On The Winner

  • Laying the foundation for stronger growth ahead, with expanding range of products and services.
  • Could China market be a dark horse? iFAST is still in the early stages of building its brand in China.
  • Looking pretty now. Potential takeover target?

Charging higher.

  • iFAST's share price has surged ~160% year-to-date, and > 600% in the last 12 months, beating all other SGX-listed stocks.
  • We maintain our positive view on iFAST Corporation (SGX:AIY) on the back of the strong growth momentum ahead. Earnings for FY21F/FY22F are expected to grow 54%/31%. We have also added FY23F forecasts, with a 20% growth in AUA. Net earnings growth of 49% for FY23F is partly boosted by maiden contributions from the eMPF project.

Laying the foundation for stronger growth ahead

Positioning for stronger growth ahead.

  • iFAST has made significant progress over the years in broadening the range of investment products and services on its platforms which enable the group to ride on the growing Fintech and wealth management industry. The growth pace was catalysed by the COVID-19 pandemic, which has led to a rise in digitalisation.

Jump in net inflow of client assets.

  • The net inflow of client assets saw a quantum leap in 2020, surging more than threefolds, and more than doubling in 1Q21. The number of customer accounts opened also increased 28% y-o-y to over 590,000 accounts as at 31 March 2021.

Accelerating growth in AUA.

  • In 2020, AUA surged 44.5% y-o-y to S$14.5bn. Over the past 10 years, AUA has grown the Unit Trust category remains the biggest contribution to AUA, the Stocks and ETFs registered the highest growth.

eMPF project

  • On 30 January 2021, iFAST announced its successful tender for the eMPF platform project in Hong Kong. iFAST has partnered PCCW Solutions as its prime subcontractor for a category that includes MPF scheme operation services, transformation services and user delivery services. As the group is still in the midst of finalising the contractual details, we provided varied assumptions on its potential contributions to bottom-line, appended in report attached below.
  • In an attempt to assess the impact of the lower end of our scenario analysis, to our FY23F earnings projection.

Other potential growth areas

  • iFAST is forming a partnership to bid for the digital bank licence in Malaysia. The central bank of Malaysia plans to award up to five licences. The group is likely to take a < 50% stake in the tie-up. The deadline for submission is end-June and the winners will be announced early next year. Capital requirement is much lower than in Singapore (minimum S$100m [RM304m]) or Hong Kong (HK$300m [RM156m]). In Malaysia, a digital bank is required to maintain minimum capital funds of RM100m in the first 3-5 years, and to increase to RM300m thereafter.

Could China market be a dark horse?

  • The China market offers ample Asset Management Association of China (AMAC). The private fund employs a fund of funds (“FoF”) investment strategy where it is invested in a portfolio of China mutual funds and private funds in the secondary market. The Private Fund Manager (PFM) licence opens up a huge addressable market in China. Opened to qualified investors, including domestic investors for subscription, this FoF provides active management through discretionary service.
  • Going forward, iFAST will continue to seek opportunities within the China market to expand its product offerings similar to that in Singapore, Hong Kong and Malaysia. One of the plans is to add stock trading via Shanghai/Shenzhen/Hong Kong Stock Connect. The China market could play an important role in helping the group to achieve the target of $100bn in AUA by 2028.

Looking pretty now. Potential takeover target?

  • Operational leverage to drive margins higher. With its scalable platform business model, iFAST has already obtained operating leverage and that should drive margins higher going forward. Since 1Q20, growth in profit has been substantially higher than the growth in revenue, showing the positive operating leverage of the group’s business model. Net margin for 1Q21 improved to 15.9%, from 14.3% in 4Q20 and 9.4% in 1Q20.

Ample room for growth in margins.

  • To assess how much more can margins improve, we use peers, Hargreaves Lansdown PLC and Charles Schwab Corporation as financial advisory services.
  • In terms of margins, both Hargreaves and Charles Schwab have net margins that are way above iFAST’s. In the last 10 years, the net margins for both companies increased by close to 2,000 basis points. This shows that there is ample room for iFAST to improve its net margin.

Pretty enough to attract deep-pocketed bigtechs.

  • With more room for growth in terms of AUA and hence earnings, iFAST is looking back of its highly cash-generative gaming business.

iFAST - Earnings & Recommendations

Imputed a conservative contribution from the eMPF project from FY23F; switched to DCF from DDM methodology.

  • We have added FY23F forecasts, and included a S$10m contribution from the eMPF project, the lower end of our scenario analysis. We maintain our AUA growth assumption of 30% in FY21F and another 20% in FY22F. We have also added FY23F forecasts, with a 20% growth in AUA. Net earnings growth of 49% for FY23F is partly boosted by maiden contributions from the eMPF project.
  • See
  • We have switched our valuation methodology to Discounted Cashflow (DCF) method from Dividend Discount Model (DDM), to capture growth in its steadily growing cash flows. Continue to read the report attached below for DCF valuation details of iFAST.
  • The current dividend yield for iFAST is only less than 1% as iFAST's share price has been trending higher at a much faster pace relative to its dividend.

Lee Keng LING DBS Group Research | https://www.dbsvickers.com/ 2021-05-28
SGX Stock Analyst Report BUY MAINTAIN BUY 10.55 UP 7.640