Near-term pain, long-term gain
? Although net inflows remained positive, sequential earnings could be
challenged by volatile markets and elevated opex (for bank, ePension).
? We factor in more substantial ePension contributions from FY23F onwards
as management sees clearer opex visibility amid the implementation phase.
? Reiterate Add as we look past near-term headwinds due to persistent market
volatility and towards c.50-60% EPS growth in FY23-24F (largely from HK).
1Q22 earnings miss due to poor market conditions
iFAST recorded PATMI of S$5.7m in 1Q22 (-20% qoq, -35% yoy), 30%/35% below
our/consensus estimates. The miss was primarily due to softer-than-expected revenue
growth on the back of poor market conditions. Although net revenue held steady yoy,
higher opex (+10% yoy) and taxes (due to absence of carry-forward tax losses) in 1Q22
led to the weaker net profit showing. 1Q22 PATMI formed 18%/16% of our/consensus
FY22F forecasts. iFAST declared an interim DPS of 1.0Scts in 1Q22 (1Q21: 1.0 Scts) –
we cut FY22F DPS to 4.8Scts (58% payout, FY21: 4.8Scts, 43% payout) as we factor in
sustained market volatility in the near term and the corresponding risk-off sentiment.
Sequential earnings likely to be challenged by higher opex
AUA dipped 2% qoq to S$18.6bn (+16% yoy) as declines in stocks and bond prices globally
offset net inflows of +S$669m in 1Q22. In tandem, gross unit trust subscription slipped
11% qoq to S$1.6bn in 1Q22. In line with management’s FY22F guidance for moderate
net revenue growth while cautioning for a decline in profitability, we believe that challenging
market conditions and rising interest rates could keep investors on the sidelines as asset
valuations stay suppressed. We cut FY22F AUA growth assumptions to c.11-15% yoy in
FY22-24F (from c.16-22% previously), leading to softer net revenue growth during these
periods. Start-up losses of c.S$4m/S$2m in FY22/23F and elevated opex (for underlying
business, ePension and digital iFAST Global Bank) will likely weigh on near-term earnings
as well.
Expedited earnings uplift from HK ePension from FY23F onwards
iFAST now guided for Hong Kong ePension contributions to ramp up more substantially
from FY23F onwards (vs. FY24F previously) on the back of opex visibility for the project.
Management projects c.S$18m-87m PBT contribution (implying c.28-38% PBT margin)
over FY23-25F from its HK operations (ePension inclusive) vs. c.S$21m-69m over FY24-
25F previously (Figure 2). While we factor in the expedited earnings uplift, we nonetheless
include in a c.20% discount to these contributions as we remain cognisant of execution
risks during the operations phase (FY24F onwards).
Reiterate Add with lower TP of S$7.60
We revise our DCF assumptions to factor in lower core earnings, include expedited
ePension contributions and WACC adjustments. Reiterate Add as we look past near-term
pressures from market volatility, and towards the earnings uplift from FY23F onwards.