Citi Research analyst Tan Yong Hong is keeping his “sell” call on iFast after the counter’s share price rallied around 60% from its trough in November, in line with the news of China’s reopening.
Retaining his target price at $3.80, the analyst adds that the counter’s average daily value traded (ADV) spiked since mid-Nov following the reopening news.
“Year-to-date (ytd)-2022, iFast's share price shares a 90% relationship with the MSCI APAC Index which rallied [around] 14% from end-September. This is because we think [iFast’s] unit trust (68% of [its] assets under administration or AUA) segment has high exposure to the index,” Tan points out.
“As such, [the] market is pricing in a potential rebound in AUA (after three successive quarterly declines) and hence earnings for 4QFY2022/FY2023 but at a level we believe is excessive,” he adds.
At iFast’s share price of $5.96 as at Tan’s report on Dec 6, he believes that the market is pricing in an FY2023 P/E of 50x for iFast’s core business based on Citi’s as well as consensus estimates. This is after stripping out $1.20 per share that’s attributable to the Hong Kong e-Mandatory Provident Fund (MPF) project.
“Our FY2023 numbers already assumed AUA rebounds [around] 25% y-o-y in FY2023, as well as some recovery in net platform margins,” he says. “Our FY2023 profits is now broadly in-line with consensus’ FY2022 profits but [around] 10% behind consensus’ FY2023 profits likely on the back of adding HK eMPF earnings contribution using management’s guidance.”
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On the market’s valuation of 50x P/E for iFast’s FY2023 earnings, the analyst believes that the market has likely over-estimated the impact of the company’s higher AUA which is driven by a rebound in the MSCI APAC Index.
“Based on our sensitivity analysis, every 5% increase in AUA would raise [iFast’s] earnings by [just] 5%,” says the analyst. “[This is] assuming net platform margins [remain] flat at 60 basis points (9QFY2022 estimated 57bps after stripping out its [Hong Kong eMPF] project fees), cost-income ratio at 77% for core business (9MFY2022: 83%) and 16% tax rate.”
“As such, we see a valuation gap with fundamentals,” says Tan.
Shares in iFast closed 10 cents lower or 1.69% down at $5.82 on Dec 13
