Taking a hit from impairments and opex
- Heftier opex (staff costs, operational costs for ePension, transaction costs for
- bank acquisition) and impairment for India business pushed 2Q22 into a loss. AUA declined 5% qoq as asset valuations dipped; net inflows were positive.
- Downgrade to Hold with a lower S$4 TP. Ramp-up of ePension is a catalyst.
2Q22 earnings impacted by regulatory change in India and opex
iFAST reported a core net loss of S$2.7m in 2Q22, against Bloomberg consensus S$8.3m estimate (1H: 13% of FY22). The loss was primarily due to a one-off S$5.2m impairment charge taken as iFAST exits its onshore platform service business in India due to a regulatory change disallowing the use of pool account for mutual fund transactions effective 1 Jul 22. Adjusting for the impairment, iFAST would still report weaker operating profit of S$2.3m in 2Q22 (-69% qoq, -73% yoy) due to heftier opex (+30% qoq, +50% yoy) for staff costs (increments, headcount, equity-based share payments), as well as IT spending, technology security services, Hong Kong ePension operating costs and transaction costs relating to the acquisition of its UK-based bank. Although net revenue was boosted by c.S$3.9m from the commencement of its banking operations in UK, earnings from its core trading platform business dipped 8% qoq (-1% yoy) on the back of weak market sentiment amid volatile financial markets. iFAST declared DPS of 1.1Scts in 2Q22 (1Q21: 1.1Scts).
AUA dipped on the back of weak markets; inflows still positive
iFAST’s exit from its onshore business in India will reduce AUA by c.S$300m, but the group will still offer fintech solutions in India. On balance, total AUA declined to S$17.7bn in 2Q22 (-5% qoq, +1% yoy) due to falling asset values and client redemptions. Net inflows remained positive, but slowed to S$592m in 2Q22 (-11% qoq, -30% yoy).
Expect revenue growth but net profit decline in FY22F
Management reiterated its guidance for overall revenue growth in FY22F, but for net profit to substantially decline given initial operating losses from its banking segment (estimated c.S$4m in FY22F) and increased opex for its new initiatives. Earnings upside from FY23- 25F will largely depend on the ramp-up of its ePension project. We understand that contributions from ePension may begin in 3Q23F barring any delays (vs. current guidance of 4Q23F). Meanwhile, iFAST’s bank is expected to post c.S$4m in start-up losses in FY22F and achieve profitability in FY24F. The consumer remittance business remains the bank’s key revenue contributor; iFAST is looking to offer online account opening and multicurrency deposits as its next product offering. Losses in China widened further to S$1.9m in 2Q22 (-8% qoq, -32% yoy) as poor market performance impacted investment sentiment.
Ramp-up of ePension contributions is a key re-rating catalyst
We revise our DCF assumptions to factor in lower core earnings as we lower AUA assumptions (-5% yoy in FY22F from +11% yoy), raise opex estimates and include the one-off impairment expense. Downgrade to Hold with a lower TP of S$4.