Wealth management FinTech platform iFAST Corporation, one of the best performing stocks in recent years, grew its assets under administration to a fifth record quarter of $17.54 billion for its 2QFY2021 ended June. However, signs of slowing earnings growth have analysts dialling back their previously bullish calls on this stock.
For 2QFY2021, iFAST reported earnings of $7.02 million, a drop of 20% q-o-q and the first quarterly dip since 1QFY2019. Year-on-year, earnings for the same quarter was up 55.5%.
While the slowdown is in line with expectations, Jefferies Singapore analyst Krishna Guha is “taking a breather”, downgrading the platform to “hold” from “buy”, though with a slightly higher target price of $9, from $8.80.
“While we think iFAST should trade at premium given recurring revenue streams, current valuation does not leave any room for error in execution, sub-optimal M&As or sharp market reversal,” he writes in a July 26 note.
CGS-CIMB Research analyst Andrea Choong also downgraded the stock to “hold” from “add”, stating that analysts are “toning down our expectations”. Noting that 2QFY2021 net profit missed consensus expectations, Choong sees limited upside for even stronger trading volumes in the coming months, with regional economies poised to reopen, albeit in various stages.
Choong notes that stock and ETF volumes have started to ease at the company. She says: “The easing of AUA growth was broadbased across markets; Singapore was the key growth driver in 2QFY2021. In tandem, revenues were weaker q-o-q across all markets except Hong Kong, which held steady. China remains loss-making but its losses have stabilised ($1.4 million loss in 2QFY2021).”
She is raising iFAST’s target price to $8.31 from $8.00 previously, representing a 6% downside.
iFAST itself acknowledged the mild quarter. “Trading activities were generally more subdued in 2QFY2021 compared to 1QFY2021, given that the general financial market conditions were more cautious during the period,” said the company in a press release on July 23.
Despite this, DBS Group Research analyst Ling Lee Keng remains bullish: Not only is she keeping her “buy” call, she has a higher target price of $12.10, from $10.55 previously. “We are more optimistic on iFAST, given its scalable business model and the drive towards digitalisation to propel the group to greater heights,” writes Ling in her July 27 note.
She adds: “iFAST is well-poised to capture more market share in Singapore, where its share is just 10% of the approximately $128 billion in AUM of collective investment schemes in Singapore. We expect AUA to grow by 30% in FY2021F and 20% each in FY2022F and FY2023F, outpacing industry growth of some 10%.”
Ling also points to iFAST’s operational leverage, which could drive margins higher. “With its scalable platform business model, iFAST has already obtained operating leverage. Since 1QFY2020, growth in profit was substantially higher than growth in revenue. This should drive margins higher going forward.”
Likewise, UOB Kay Hian Research analyst Clement Ho is maintaining “buy” on the company and catching up with street figures, with target price spiking to $11.50, up nearly 50% from $7.96 previously.
“The longer-term structural dynamics are favourable to iFAST as the percentage of managed wealth in Asia grows. This will be driven mainly by China, as financial markets there continue to open and help spur growth in the Asian wealth management industry,” writes Ho in a July 26 note.
The recent launch of the Malaysian stockbroking service on the FSMOne.com investment platform has helped strengthen the group’s position, he adds.
iFAST is also in the running for a digital bank licence in Malaysia. Results for the five new licenses are expected in 1Q2022.
iFAST will own a 40% stake in a partnership that also includes Malaysian partners Koperasi Angkatan Tentera Malaysia, THZ Alliance, minimart chain 99 Speed Mart founder Lee Thiam Wah and China’s Yillion Fintech. The latter is an arm of Yillion Bank, one of four digital banks in China founded by Zonfar Financial Holding and Hong Kong-listed Meituan Dianping.
Meanwhile, discussions are ongoing following iFAST’s successful tender of the eMPF Platform pension fund project in Hong Kong. The project has a two-year implementation period to be completed by end-2022, and a seven-year maintenance period thereafter. iFAST targets to provide more details on the eMPF Platform project by the end of this year.
“We note that the 2021 price-to-earnings (P/E) valuation may appear elevated as iFAST is in a high earnings growth phase. The target price implies a 2022F P/E of 73.1 times,” writes UOB Kay Hian’s Ho. “As 69% of iFAST’s revenue is recurring in nature, we are of the view that free cash flows and long-term earnings growth are relatively sticky.”