Margins trending higher
- Strong surge in 4Q/FY23 earnings, above expectations; AUA up 13.8% y-o-y to reach a record high of S$19.83bn
- Improvement in margins, but operating expenses ahead could remain high
- No change in 2024 and 2025 earnings guidance for Hong Kong business but revenue targets cut by over 20%
- Raised FY24F/25F earnings by 15%/2% mainly on higher margin assumptions; maintain HOLD with higher S$8.33 TP
FY23 earnings above expectations on strong improvement in margins
Strong surge in 4Q/FY23 earnings, above expectations.iFAST reported 4Q23 net profit of S$13.2m (+917% y-o-y, +55% q-o-q). Total revenue jumped 63% y-o-y (+24% q-o-q) to S$77.3m. The increase in profitability was driven by initial contributions from the ePension division, as well as improvements in the group’s core wealth management platform business. For FY23, net profit surged 340% to S$28.3m, on the back of a 23% gain in revenue to S$256.5m. FY23 earnings were 13% above our estimates.
DPS of 1.4 Scts was proposed for 4Q23, bringing full year DPS to 4.8Scts, reflecting a 50% payout ratio for FY23.
AUA up 13.8% y-o-y to reach a record high of S$19.83bn as at 31 December 2023, driven by net inflows of S$2.0bn during the year. This outperformed the MSCI AC Asia ex Japan index, which saw a 6.3% y-o-y increase.
Singapore saw healthy growth, Hong Kong market boosted by eMPF project. In terms of geographical breakdown, Singapore remained the key contributor with a 15.2% growth in net revenue. The strong performance for the Hong Kong market was mainly boosted by the contribution from the eMPF project which started in 3Q23.
UK Bank to breakeven in 4Q24; China still loss-making. The group expects iFAST Global Bank to post narrower losses in 2024 compared to S$8.6m loss in FY23. iFAST Global Bank is targeting to breakeven by 4Q24. China, however, continues to be loss-making, and registered a S$7.2m loss in FY23.
Improvement in margins, but operating expenses going forward could still remain high. 4Q23 net margin improved to 17.0%, from 13.7% (based on total gross revenue), with increasing contribution from the eMPF project. However, operating expenses could remain high as the group continues to build its ePension projects (eMPF and ORSO) in Hong Kong while the UK bank is only expected to breakeven in 4Q24.
ePension division in Hong Kong a key growth driver; overall wealth management platform to show healthy progress. With the eMPF project expected to be launched this year and fully operational in 2025, coupled with the newly launched ORSO ePension Service, a one-stop digital pension solution geared for the Hong Kong Occupational Retirement Schemes Ordinance (ORSO), contribution from the Hong Kong ePension division would be the key growth driver ahead. For the overall wealth management business, we can expect healthy progress.
No change in 2024 and 2025 earnings guidance for Hong Kong business but revenue targets cut by over 20%. iFAST has updated its guidance on the group targets for the overall Hong Kong business. The profit before tax targets for 2024 and 2025 have been maintained. However, the revenue targets have been reduced for 2024 and 2025 given that the tough financial market conditions in Hong Kong have reduced business volumes for the wealth management business, and also some timing delays for the ePension division. Overall, the Hong Kong revenue targets have been reduced by over 20% from the last guidance in April 2022.
Raised earnings by 15%/2% for FY24F/25F mainly on higher margin assumptions. Despite the 5%-6% cut in overall total revenue on the back of the lower guidance for the Hong Kong business, net earnings for FY24F/FY25F were raised by 15%/2% as we have assumed higher margins, with the improving margin trend. Net margin assumption is raised to 16.1%/19.5% for FY24F/FY25F, from 13.3%/18.0% previously. There is no change in our projection of 15% y-o-y growth in AUA for FY24F and FY25F, as the ePension project is not included in the AUA computation. Our target price is raised accordingly to S$8.33 (previously S$6.95), based on the DCF valuation method. Maintain HOLD, as we could still see higher operating costs ahead, as both the eMPF and ORSO projects are still in the infancy stages.