Citi Research analysts labelled iFast Corporation’s earnings for 3QFY2022 ended September a miss on wider losses from its newly acquired UK bank. While the company’s core segments improved, margins remain soft, they add.
In an Oct 27 note, Citi Research analysts Tan Yong Hong and Tian Yafei maintain their “sell” call on iFast, which they call a “high risk stock”, with a target price of $3.80.
After a loss-making 2QFY2022, iFast reported net profit of $2.08 million in its 3QFY2022, a 72.6% decrease y-o-y.
This was driven by an “unexpected” 43% q-o-q decline in net revenue from banking operations (formally BFC Bank), leading to loss more than doubling q-o-q to $2.2 million.
This included some one-off closure costs, note Tan and Tian. Assets under administration (AUA) declined $0.7 billion or 4% q-o-q driven by an outflow from the exit of iFast’s India business and markets’ impact more than offset net inflows.
Attributable profit before tax (PBT), excluding the UK bank, associate income and one-offs, saw some sequential recoveries due to a low base from a soft 2QFY2022, write Tan and Tian. That said, core metrics, such as net platform margins and AUA growth, remain soft.
At the end of March, iFast completed its acquisition of and investment in the UK-based iFast Global Bank Limited, formerly known as BFC Bank Limited.
Banking operations were a surprise drag, say Tan and Tian, as 3QFY2022 losses widened to $2.17 million.
Management maintains FY2022 guidance of $4 million in attributable losses, and targets profitability from FY2024. Closure of physical branches in the UK led to some closure costs. Deposit balance also declined 16% q-o-q.
Underlying profitability, excluding the UK bank, associate’s income and one-offs, improved 44% q-o-q from a soft 2QFY2022 to $5.6 million, write Tan and Tian.
Despite some improvement in core earnings, uncertainties in an additional loss-making segment for the UK bank, in addition to China operations, would be viewed negatively by investors, say Tan and Tian.
Meanwhile, DBS Group Research analyst Ling Lee Keng is maintaining “hold” with a lower target price of $4 from $4.08 previously.
2022 will be a year of higher costs and slower revenue growth, says Ling. “The tough market conditions, coupled with higher operating expenses and initial operating losses for iFast Global Bank, together with the $5.2 million impairment charges for the India platform business, has led to weak 9-month results.”
2022 will be a year of higher costs, as the group prepares to launch the ePension business in Hong Kong while the UK bank is still incurring losses, at least till 2024.
With the higher costs and slower growth in revenue, the group would not be able to enjoy operating leverage. However, with contribution from the ePension business starting to increase from 3QFY2023 onwards, iFast is expected to again achieve the benefit of operating leverage, says Ling.
Ling believes iFast’s longer term earnings momentum remains strong.”Expect revenue and profitability to reach new highs in 2023. We maintain our positive view on iFast in the longer term on the back of the strong growth momentum from 2023, propelled by the Hong Kong business."
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Against the backdrop of weak markets and start-up losses, CGS-CIMB Research analyst Andrea Choong is maintaining "hold" on iFast with a lower target price of $3.80 from $4.00 previously.
With Hong Kong’s Mandatory Provident Fund announcing that it will start onboarding trustees beginning June 2023, iFast now guides for ePension contributions to begin in 3Q2023, a quarter earlier than expected. "Given the updated timeline of commencement, management aims to provide updates to the target guidance in early-FY2023," writes Choong in an Oct 28 note.
"We cut FY2022-2024F earnings by 2%-23% to reflect weaker trading volumes amid market volatility and raise our tax assumptions, [as the] unprofitable UK business does not reduce tax charge."
As at 9.53am, shares in iFast are trading 4 cents lower, or 1.01% down, at $3.92.
