iFAST Corporation - DBS Research 2021-07-26: Shining Star Backed By Exceptional Growth

IFAST CORPORATION LTD. (SGX:AIY)

iFAST Corporation - Shining Star Backed By Exceptional Growth

iFAST's 1H21 results broadly in line; higher dividend declared.
Fifth consecutive quarter of record AUA, benefitting from expanded range of products and services.
Growth in recurring revenue outpaced the non-recurring; strong growth in key Singapore market.

iFAST (SGX:AIY)'s 2Q21 net profit grew 55.0% y-o-y to S$7.0m, on the back of the 31.7% growth in revenue to S$50.8m. On a q-o-q basis, net profit was down 20.4% as revenue eased 8.2% due to a more subdued market condition. The resurgence of COVID-19 infections and the lockdown, coupled with the growing concerns over inflation, affected market sentiment towards the end of 2Q21.
For 1H21, net profit of S$15.8m (+94% y-o-y) accounts for 49% of our full-year forecast, broadly in line. Reflecting the positive operating leverage of the group’s business model, the net margin increased to 14.9% for 1H21 compared to 12.4% for FY20. A higher second interim dividend of S$0.011 per share was declared vs S$0.0075 in 2Q20.

AUA registered growth of 57.3% y-o-y and 21.4% year-to-date to reach a record high of S$17.54 bn as at 30 June 2021. The strong growth in AUA was on the back of the significant net inflows of funds into the group’s platforms during the period. This benefits from the group’s continuous efforts in improving the range and depth of products and services brought to clients and business partners in recent years.

On the back of the increasing AUA, 2Q21 recurring net revenue grew 39.2% y-o-y vs 15.3% y-o-y for the non-recurring portion. The slower growth momentum for the non-recurring revenue was mainly due to a more subdued market condition. The offering of a lower flat transaction processing fee of S$8.80 to all B2C clients in the Singapore operation on the dealing of securities listed on Singapore Exchange from April 2021 has also led to lower revenue for stocks and ETFs, which is one of the main sources of non-recurring revenue.
Overall, the recurring vs non-recurring net revenue split was 74:26 in 2Q21, vs 64:36 in 1Q21.

The AUA of the Singapore operation grew 63.1% y-o-y and 9.4% q-o-q to a record high of S$12.2 bn as at 30 June 2021. All business divisions, including B2B, iFAST Global Markets (iGM) and FSMOne.com, achieved record high AUA levels.
The AUA of the Hong Kong operation grew 30.7% y-o-y and 6.3% q-o-q to S$3.1 bn as at 30 June 2021. The Hong Kong operation has further strengthened its stock broking capabilities with the launch of China A-Shares trading services through the China Stock Connect via HKEX in June 2021.
Though AUA for Malaysia and China also registered growth both on y-o-y and q-o-q bases, the momentum was not as strong as 1Q21. Sentiment for Malaysia was affected by the lockdown, while China’s was mainly due to the uncertainty in the China equity market.

iFAST has been engaging in discussion with industry players as part of its preparatory work for the eMPF Platform project.
Back in January 2021, iFAST, together with its partner PCCW Solutions, has won the tender for the eMPF project in Hong Kong. The Group targets to be able to give some guidance on the potential growth of its overall Hong Kong business for 2023/2024 and beyond by the end of this year. We have included a conservative S$10m contribution to our FY23F earnings projection.

iFAST has led a consortium in the submission of an application for a digital bank licence in Malaysia. If the application is successful, iFAST will own a 40% stake in the digital bank, and the beneficial equity ownership of the consortium will be approximately 57% Malaysian. iFAST hopes to serve the unserved and underserved market segments such as the less wealthy population in Malaysia.
There is also a huge addressable market in Southeast Asia, with about 70% of the adult population (~ 98m population) underbanked or unbanked. From a global perspective, a successful application will allow iFAST to capture more digital banking opportunities and develop a truly global digital banking and Fintech business model.

We maintain our AUA growth assumption of 30% in FY21F and another 20% each in FY22F and FY23F. Earnings for iFAST in FY21F/FY22F/FY23F are expected to grow 54%/31%/49%, respectively. The projected 49% growth in earnings for FY23F is partly boosted by maiden contributions from the eMPF project.
See
We have included a conservative S$10m contribution to our FY23F earnings projection. Overall, no change to our earnings estimates. The higher DCF-derived target price of S$12.10 for iFAST is due to the slightly lower WACC of 8.3%, vs 8.5%, and also higher amortisation of intangible assets.

Lee Keng LING DBS Group Research | https://www.dbsvickers.com/ 2021-07-26

SGX Stock Analyst Report BUY MAINTAIN BUY 12.10 UP 10.550