Delays on the horizon
- iFAST lowered its revenue guidance for ePension business as delays in the onboarding of trustees may signal some implementation hiccups, in our view.
- The stock nonetheless offers strong hoh and yoy net profit growth in FY24- 25F as ePension contributions are progressively factored in.
- Reiterate Hold on further possible project delays, and qoq earnings volatility. We raise our TP to S$9.10 as we revise our risk-free and LTG estimates.
4Q23 PATMI missed our estimates due to heftier opex
iFAST recorded 4Q23 PATMI of S$13.2m in 4Q23 (+55% qoq, +917% yoy from S$1.3m in 4Q22). This was 21% below our estimates but 20% above Bloomberg consensus. This brought FY23 net profit to S$28.3m (FY22: S$6.4m), which was 11% below our estimates. FY23 net profit formed 89%/108% of our/consensus full-year estimates, missing our estimates due to heftier other opex (+50% qoq, +38% yoy), which was mainly for the ramp-up of its banking operations in UK and impairments allowance China-related debt securities in 4Q23. iFAST declared a final DPS of 1.4Scts in 4Q23 (4Q22: 1.4Scts).
ePension guidance revised due to delayed onboarding of trustees
A key update from its 4Q23 earnings was that iFAST cut its FY24-25F revenue and net revenue guidance for its Hong Kong and ePension business, but maintained its corresponding pretax profit estimates (Figure 2). According to management, the revision was due to a delay in the onboarding process for ePension trustees (resulting in delayed recognition of both revenue and opex) and softer Hong Kong platform business earnings due to persistently challenging market conditions. This delay would likely result in a further step-up of ePension revenues in FY26F before it reaches a steady state.
iFAST Global Bank gaining traction; aims to break even in 4Q24F
Key operating trends across iFAST’s underlying platform business were broadly similar qoq in 4Q23, with SG leading overall assets under administration (AUA) growth as HK and CN business stayed soft. iFAST Global Bank’s deposits gained traction, rising to GBP214m in 4Q23 (+53% qoq). On this end, iFAST places these deposits with the Bank of England to gain a spread without taking balance sheet risk. An additional avenue for spread would be to invest these funds in investment grade bonds. While the bank remained loss -making in 4Q23, iFAST aims for it to break even by 4Q24F, driven by net interest income growth.
Reiterate Hold with higher DCF-based TP of S$9.10
Our TP is raised to S$9.10 (implying 28x FY25F P/E, Figure 3) as we cut our risk-free rate (to reflect lower Singapore government 10-year bond yields) and raise our long-term growth (LTG) assumptions (to reflect the step-up in ePension and platform business growth). While iFAST offers improving sequential net profit growth in FY24-25F, we are cognisant of further implementation (and financial) delays and opacity of the onboarding process of its ePension project – both of which are downside risks for the stock.
