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Simons Trading Research

Author: simonsg   |   Latest post: Thu, 15 Aug 2019, 4:26 PM

 

IFAST Corporation - Pursuing Digital Bank Licence

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  • IFAST CORPORATION LTD. (SGX:AIY)'s 1H19 results in line; 2Q19 net profit rose 54.4% q-o-q but fell 17.0% y-o-y.
  • Continued growth in AUA, at 12.2% YTD.
  • Pursuing digital bank licence to further broaden its range of products and services.
  • Maintain HOLD and S$1.05 Target Price.

Benefitting From Growing Fintech and Wealth Management Industry

  • iFAST has made significant progress in broadening the range of investment products and services on its platforms which enable the group to ride on the growing Fintech and wealth management industry. Near term, market volatility and continued investment in its platform will continue to affect iFAST, while its China operation is still expected to be loss-making.
  • iFAST will be pursuing the digital bank licence in Singapore and is in talks with potential partners for the upcoming application. If successful, the Group’s integrated wealth management platform would be further enhanced, with five key product groups – unit trusts, ETFs, bonds, stocks and insurance, and ability to provide cash management in five markets – Singapore, Hong Kong, Malaysia, China and India.

More Room for AUA Growth

  • We maintain our AUA growth assumption of 5% p.a. for FY19F and FY20F. We believe that there is still room for growth as the current AUA level remains low, at about 1% the size of the asset management industry in Singapore.

What's New - 1H19 Results in Line; Pursuing Digital Bank Licence in Singapore

1H19 results in line

  • iFAST's net IT Fintech, to position for any new and emerging opportunities.
  • Net margin for 2Q19 was 7.8%, vs 8.8% for FY18. A second interim dividend of 0.75 Scts was declared for 2Q19, similar to 2Q18.
  • Overall, results were in line as 1H19 revenue and net profit account for 47% and 49% of our FY19 forecasts respectively.

China is still loss-making

  • Tough China have slowed down the pace at which iFAST has been able to introduce its services more broadly. Its China operation registered a net loss of S$1.22m in 2Q19, vs S$1.05m in 2Q18.

Continued growth in AUA, +12.2% YTD

  • Despite volatile financial market conditions, Assets under Administration (AUA) grew 12.2% year to-date to a record high of S$9.04bn as at 30 June 2019. iFAST has benefitted from its continuous efforts in improving the range and depth of its products and services.

Pursuing digital bank licence

  • The Monetary Authority of Singapore (MAS) recently announced its plan to issue up to five digital bank licences to non-bank players. iFAST will be pursuing the digital bank licence in Singapore and is in talks with potential partners for the upcoming application.

Looking at two partners

  • iFAST could be looking at two partners, including local ones like government-linked companies and companies with international capabilities for example, strength in the internet space.
  • iFAST has some natural strengths to perform digital banking as it is one of the few Fintech firms in Singapore with the track record of running a profitable regulated business handling large amounts of retail monies and assets.

Broaden e-payment and lending capabilities

  • If successful, the digital banking licence will allow the group to broaden its services to include the ability to provide cash management and related wealth management services to various companies in the digital economy, including payment players and e-commerce players. The lending capabilities would be another additional revenue stream for the group.

To set up separate entity; may require fund-raising

  • iFAST is likely to set up a separate entity so as not to dilute its current stake. The initial capital requirement is estimated to be in excess of S$100m, for which iFAST may need to embark on a fund-raising exercise, either debt and/or equity. The capex for this new segment is expected to be less than its current capex of about S$10-11m per annum. The licence is likely to be issued next year.

Benefitting from Fintech and wealth management industry growth

  • With the continued medium-to-long term, iFAST is well-positioned to benefit from the opportunities in the Fintech and wealth management industry, which is still in the nascent stage of growth.

Maintain HOLD and S$1.05 Target Price

  • We maintain our AUA growth assumption of 5% growth for FY19F and FY20F. Thus, no changes have been made to our forecasts. Our Target Price of S$1.05 is based on the Dividend Discount Model (DDM) valuation methodology, given that it is a cash-led business with a dividend payout ratio of 60% (excluding China operation).

Source: DBS Research - 29 Jul 2019

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