Higher costs from new initiatives
- Downgrade to HOLD; TP lowered to S$5.42 to account for earnings cut, higher WACC and slower growth
- Lacks near-term catalysts, digital bank bidding in Malaysia likely unsuccessful
- Longer term plans in place but margins heading lower as the group executes on various initiatives
- Valuation is high as business is still not at an optimal level yet; to improve as initiatives bear fruit
Investment Thesis:
Downgrade to HOLD, TP cut to S$5.42. Post the 1Q22 results briefing, the group reiterated its Four-Year Plan but near- term catalysts are lacking. Furthermore, operating costs are expected to be high in the coming quarters with the new initiatives in place, including the UK bank acquisition and ePension project. Hence, we downgrade iFAST to HOLD.
Lacking near-term catalysts, digital bank in Malaysia likely off. There was no update on the bidding on the digital bank licence in Malaysia, and the management stated that it is fair to assume that it was not successful.
Longer term earnings momentum remains strong; Hong Kong to propel growth from 2024. We maintain our positive view on iFAST in the longer term on the back of the strong growth momentum from 2023, propelled by the Hong Kong business.
Valuation:
Cut to HOLD with a lower TP of S$5.42, to account for cut in earnings, higher WACC and slower growth. Our TP is based on the Discounted Cashflow (DCF) valuation method to capture its steadily growing cashflows.
Where we differ:
We have factored in higher costs, hence lower margins as the group executes on the various initiatives in place.
Key Risks to Our View:
Its operations are vulnerable to changes in laws and regulations as well as market sentiment.