Looking past near-term headwinds
? We believe that AUA is heading into a more normalised steady state of growth; unit trusts will play a more prominent role as stock-trading eases.
? Recurring net revenue ratio back at c.74% in 4Q21 – a positive development.
? Stronger trading volumes from market volatility and earlier contributions from eMPF are key catalysts. Reiterate Add with lower DCF-based TP of S$9.70.
4Q21 earnings miss consensus’ forecasts on broad market sell-off
iFAST posted a 4Q21 net profit of S$7.2m (-5.2% qoq/+5.5% yoy), below consensus’ estimates by 19%. This was mainly due to weaker net revenue (-7% qoq/ +16% yoy) on the back of the broad market sell-off amid Omicron-related concerns. As a w hole, FY21 net profit rose 45% yoy to S$30.6m (FY20: +122% yoy) and formed 94%95% of our/consensus’ full-year estimates. iFAST declared a final DPS of 1.4Scts (4Q20: 1.0 Scts) bringing total DPS to 4.8Scts in FY21. We cut FY22F DPS estimate to 5.2Scts – aligning
with FY21’s c.43% payout ratio and our lower revenue estimates.
A more measured pace of AUA growth as stock-trading tapers
AUA balances rose to S$19bn in 4Q21 (from S$14.5bn in 4Q20), but the pace of growth slowed further to 3% qoq (+31% yoy). In particular, there was AUA outflow in HK and China given weaker market conditions and tightened regulatory oversight. In tandem, net revenues from these regions slipped, with losses in China widening to S$1.6m in 4Q21 (1Q-3Q21: S$1.4m). Management warned of wider losses in China in FY22F, before they narrow towards breakeven in FY24F as AUA scales up (4Q21: +75% yoy to c.S$496m). We believe earnings growth in FY22F will depend on unit trusts (73% of AUA) as the exuberance of stock and ETF trading tapers off given the rising interest rate environment. Although gross unit trust subscriptions held steady at c.S$1.5bn in 4Q21, w e think AUA growth could trend lower to c.20% yoy in FY22F (vs. c.31% in FY21).
We see scope for higher eMPF fees from HK’s HK$1.2tr MPF AUM
Going forward, iFAST’s ePension project in HK will be its key earnings driver. Contributions from the project will begin in FY23F and are expected to scale up to help lift net profit from HK to c.S$57m in FY25F, from c.S$8m in FY21 (Figure 2). iFAST had conservatively built in a six month delay in the roll out of this project; barring implementation challenges, the commencement (and recurring service fees) of the project may be brought forward. Earnings upside will come from stronger-than-guided PBT margins from HK (c.15% in FY24 and c.33% in FY25F) given its role in administering part of HK’s HK$1.2tr (c.S$207bn) Mandatory Provident Fund (MPF) AUM.
Reiterate Add with a lower TP of S$9.70
We revise our DCF assumptions to factor in lower core earnings, management’s guidance of backloaded eMPF contributions from FY24F onwards and delayed fee recognition compared to our initial estimates beginning FY23F, as well as WACC adjustments. Reiterate Add as w e look past near-term headwinds, towards c.28% EPS growth in FY23F.