iFAST Corporation - UOB Kay Hian 2021-07-25: 2Q21 Robust Recurring Revenue Growth As AUA Pushes Records

IFAST CORPORATION LTD. (SGX:AIY)

iFAST Corporation - 2Q21 Robust Recurring Revenue Growth As AUA Pushes Records

The faster-than-expected AUA growth for iFAST (SGX:AIY) continues to hit record levels, helping the fintech firm achieve greater operating scale. Overall AUA has grown to S$17.54b, driven mainly by the Singapore market and new subscription into unit trusts. Net inflows of client assets will continue to support AUA growth in 2H21.
We remain positive on iFAST amid the strong momentum going forward. Maintain BUY with a higher target price of S$11.50.

Growth in assets under administration (AUA) for iFAST Corporation (SGX:AIY) has been robust, continuing to register new record levels. See iFAST's announcements. Group AUA reached S$17.54b as at 30 Jun 21, growing 57.3% y-o-y and 8.9% q-o-q (31 Dec 20: S$14.45b).
The Singapore market remains as the main growth driver for the group, constituting S$12.2b in AUA (+63.1% y-o-y; +9.9% q-o-q), supported by the higher client base across both the business-to-business (B2B) and business-to-consumer (B2C) divisions.
In terms of products, the AUA of unit trusts grew to a record S$12.87b (+48.7% y-o-y; +8.7% q-o-q), accounting for 73.3% of overall AUA.

Going forward, iFAST's AUA growth in 2H21 is expected to remain stable, supported by the continued strength in net inflows of S$2.122b in 1H21 (2020: S$3.16b; 1H20: S$1.247b).

As iFAST achieves higher AUA, it will benefit from increased operating scalability, translating to higher net revenue margin and earnings profitability.
A percentage of AUA and net revenue/recurring net revenue were held at a steady average of 0.733%/0.599% across 2017-19, before dipping to 0.723%/0.502% in 2020-1H21 due to the surge in trading income as a result of market volatility. This compares to the steady decrease in operating expenses as a percentage of group AUA fell from 0.625% in 2017 to 0.471% in 1H21, as initial ramp-up and major development costs have been incurred in key markets prior to 2020.

The recent launch of the Malaysian stockbroking service on the FSMOne.com investment platform has helped strengthened the iFAST’s position as a multi-asset Koperasi Angkatan Tentera Malaysia, THZ Alliance and Mr. Lee Thiam Wah, as well as international partner Yillion Fintech.

Discussions remain ongoing on preparatory works for the successful tender of the eMPF Platform project in Hong Kong. The project has a 2-year implementation period to be completed by end-22, and a 7-year operation/maintenance period thereafter. iFAST will be the prime subcontractor for the project, and the scope includes MPF scheme operation services, transformation services and user delivery services.
iFAST targets to provide more details on the eMPF Platform project by end-21.

We have raised our iFAST's 2021 AUA estimate by 4.3% from S$16.89b to S$17.63b in staff costs of 19.1% across 2023-30 to 16%, which resulted in the increase in net profit CAGR from 22.6% to 25.8% across 2023-30.

Maintain BUY rating on iFAST with a higher DCF-based target price of S$11.50 (from S$7.96), due to the increase in net profit estimates across 2021-31.
As 69% of iFAST’s revenue is recurring in nature, we are of the view that free cash flows and the long-term earnings growth 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 in a high earnings growth phase. The target price implies a 2022F P/E of 73.1x.
See
Catalysts to iFAST's share price:
- Stronger-than-expected AUA growth.
- Award of Malaysia digital banking licence.

Clement Ho UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-07-25

SGX Stock Analyst Report BUY MAINTAIN BUY 11.50 UP 7.960