Following the release of iFast Corporation’s 1QFY2021 results ended March, the company is “rising in strength”, says CGS-CIMB Research analyst Andrea Choong in an Apr 23 note.
Choong is upgrading iFast to “add” from “hold”, with a raised target price of $8 from $5.67.
“1QFY2021 net profit was a beat due to robust stock and ETF trading volumes… iFast has recorded sequentially higher q-o-q net profit since 2019. We think sales volumes will sustain as regional operations scale up,” writes Choong.
iFast posted 1QFY2021 net profit of $8.8 million, up 29% q-o-q and up 143% y-o-y. This was 23% and 5% above CGS-CIMB’s and the consensus full-year estimates respectively.
“Net revenue beat our estimate by 11% on the back of robust B2C trading volumes. Opex was relatively contained, driving operating margins higher to 18.6% in 1QFY2021, up from 15.2% the year prior,” says Choong.
See: iFast starts 2021 with record earnings of $8.8 mil and AUA of $16.11 bil
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iFast declared interim dividend per share (DPS) of 1.0 cents, compared to 0.75 cents in 1QFY2020, and the company guides for a y-o-y rise in FY2021F DPS. Choong expects 6.5 cents in FY2021F.
Assets under administration (AUA) balances rose to $16.1 billion at end-Mar 2021, up 11.5% q-o-q and up 69% y-o-y. By geography, the growth came mainly from Singapore and Malaysia.
Stocks and ETFs remain as iFast’s strongest growth segment, sustaining its approximately 30% q-o-q rise for the fourth consecutive quarter. On balance, this was supported by average daily value traded on the Singapore Exchange (SGX) of approximately $1.5 billion in 1Q2021.
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Consequently, the proportion of recurring net revenue to total net revenue dipped to approximately 64% in 1Q2021 from 81-85% in FY2016-2020. “We do not view this too negatively at present, but expect this proportion to trend upwards in step with any slowdown of trading volumes,” says Choong.
Hong Kong and China recorded sequential net revenue growth, but seasonally higher opex in HK and expansion costs in China had dinged net profit, notes Choong. iFast expects losses in China to widen slightly in FY2021F as it builds up its private fund management business, but for this to narrow in FY2022-2023F as operations scale up.
Meanwhile, Jefferies Singapore analyst Krishna Guha is recommending “buy” on iFast with a target price of $7.80.
“Capex was $2.2 million in the quarter and is expected to be in line with the last two years (approximately $12 million). “If cash flows stay at $40 million plus, iFast will accumulate cash of $25 million annually. In our view, capex is likely to increase from $12 million run rate in light of HK MPF and other projects. While competition is increasing, iFast is expanding its services and growing its ecosystem of partners who may also seem to be competitors,” says Krishna.
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On Jan 29, the Mandatory Provident Fund Schemes Authority of Hong Kong announced that it has awarded PCCW Solutions with the contract for the design, build and operation of the eMPF Platform.
iFast had participated in the tender for the eMPF Platform project with PCCW Solutions as their Prime Subcontractor for a category that includes MPF scheme operation services, transformation services and user delivery services.
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Hong Kong’s eMPF Platform aims to standardise, streamline and automate the MPF scheme administration processes to create room for fee reduction and a predominantly paperless experience in the MPF System.
Krishna expects growth to slow down for iFast, especially from the “high base” of 2H2020. “1QFY2021 PATMI is at 25% of our FY forecast. Profit before tax (PBT) margins of 26 bps are ahead of our FY assumption of 21 bps. As such, PBT margins should decrease in subsequent quarters. We are seeing initial signs with gross unit trusts subscription of $2.2 billion for 1QFY2021 declining from $3 billion plus amount achieved in each of last three quarters.”
There is “not much room” for error or steep market declines, notes Krishna. “However, few upside catalysts for earnings exist which are not in our forecast. Peer UOBKH earns $21 million of PBT from Malaysia. Even if iFast earns a quarter, it will add 20% to the bottom line. In the medium term, the rollout of the iFast Global Markets (iGM) platform, China breakeven and HK MPF will boost earnings.”
As at 1.27pm, shares in iFast are trading 19 cents higher, or 2.91% up, at $6.71.
