Ling Lee Keng of DBS Group Research has downgraded iFast Corp to “fully valued” from "hold" following news that its upcoming project in Hong Kong, seen as a key earnings contributor, has been delayed.
“We expect share price weakness in the near term, especially after the almost 70% rebound from end-October 2022 to mid-December 2022,” writes Ling in her Jan 16 note.
On Jan 14, iFast had said it plans to keep its earnings guidance from the project, despite the delay, as it had already provided a buffer for possible delays.
iFast maintains that it can book a profit before tax of more than HK$100 million for FY2023, and that this amount will increase to more than HK$500 million for FY2025.
“We believe this delay could lead to further increases in operating costs and push back in revenue recognition. As of 3Q22, operating costs have already increased 19.5% y-o-y,” she notes. “With this delay, we can expect further increases in operating costs.”
For the current FY2023 and coming FY2024, Ling has cut her earnings projection by 3% and 26% respectively.
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Ling notes that iFast, trading at $5.86 at the time she issued her call, was already 32% higher than her target price of $3.98.
iFast shares would close Jan 16 at $5.36, down 8.53% for the day, and down 31.11% over the past year.
As announced by iFast over the weekend, the Hong Kong ePension project has fallen behind schedule by eight months because of manpower shortage due to the pandemic.
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iFast is a subcontractor to PCCW Solutions, the Hong Kong tech firm leading this project to digitalise the administration of Hong Kong’s public pension fund.
With the delay, the platform would only be up and running in 2025.
According to Ling, with impending higher costs and slower growth in revenue, iFast would not able to enjoy the level of operating leverage as envisaged.
Ling notes that iFast’s financial performance is typically tied to market sentiment. “With the delay in this key project, we could expect some share price weakness in the near term.
“We would prefer to re-visit this stock again when we have more clarity on the development of the ePension project,” she adds.
