iFast Corporation AIY continues to split analysts with the results of its latest quarter, with its UK bank still contributing start-up losses a year after its acquisition.
The risk-off sentiment persists at iFast, writes CGS-CIMB Research analyst Andrea Choong in an April 27 note. Choong is among the more pessimistic analysts, maintaining “reduce” on the wealth management platform with an unchanged target price of $3.50. Choong’s target price represents a 25.2% downside against iFast’s last traded price of $4.68 on April 26.
iFast recorded patmi of $3 million in 1QFY2023 ended March, up 130% q-o-q but down 48% y-o-y. This is 42% and 52% below CGS-CIMB and consensus estimates.
The miss was due to a weaker-than-expected recovery of iFast’s wealth management platform business, although this was partly offset by stronger interest income from its banking operations from deposits with the central bank and income from bonds, notes Choong.
Overall, 1QFY2023 net revenue rose 4% q-o-q and 10% y-o-y. Although start-up losses from its banking operations narrowed q-o-q to $1.7 million in 1QFY2023, compared to a $5 million loss in FY2022, Choong expects losses to continue in FY2023 as the bank ramps up.
1QFY2023 net profit formed 14% and 12% of CGS-CIMB and consensus full-year estimates.
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iFast declared an interim dividend per share (DPS) of 1 cent in 1QFY2023. Choong expects DPS of 4.8 cents in FY2023, unchanged from FY2022.
iFast’s UK bank launched its digital personal banking platform on April 24, allowing customers around the world to open a bank account. Initial services include fixed term and notice deposit products across multiple currencies.
That said, its remittance business (EzRemit) will remain its key contributor until other products gain traction, notes Choong. In time, iFast aims for its banking operations to generate a 1.5% net interest margin (NIM), lower compared to the local banks’ current 2% margin given its focus on executing a lower-risk strategy.
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Albeit delayed, iFast guided that the ePension project in Hong Kong is progressing and reiterates its stance that its portion of project fees should commence in 4QFY2023.
That said, Choong maintains that FY2024 could be more realistic, repeating a belief from her report following iFast’s FY2022 results.
“We maintain our projections (40%-50% discount to its guidance) pending visibility on achieving these goals. Clarity on its administration of ORSO (Occupational Retirement Scheme Ordinance) could be a re-rating catalyst,” writes Choong. “We reiterate ‘reduce’ given persistent risk-off sentiment amid interest rate volatility.”
AUA bright spot
That said, analysts have also pointed to iFast’s positive net inflows of client assets and rise in 1QFY2023 assets under administration (AUA).
As at end-March, iFast’s AUA rose to $18.1 billion, down 2.6% y-o-y but up 4.2% q-o-q, as its key market of Singapore saw opportunities with stronger equity and bond market performance during the quarter.
“It is important to note that the q-o-q rise has contributed to iFast’s improved profitability as compared with the previous three quarters,” note UOB Kay Hian Research (UOBKH) analysts Heidi Mo and John Cheong.
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In an April 27 note, Mo and Cheong maintain “hold” on iFast with a lower target price of $4.81 from $5.06 previously.
AUA growth has been the lead driver for iFast, which translated to greater operating scalability for earnings growth, note the UOBKH analysts.
Due to negative market effects, Mo and Cheong expect profitability to be impacted before the new ePension division starts to contribute more meaningfully from 4QFY2023. “Over the longer term, we remain positive on iFast as we believe in the group’s strategy to increase its scale through product offerings and geographical reach.”
‘Fully valued’
Meanwhile, DBS Group Research analyst Ling Lee Keng maintains that iFast is “fully valued”, a recommendation between “hold” and “sell”. In an April 26 note, Ling trims her target price to $3.92 from $3.98 previously.
Ling notes a pause in iFast’s operating leverage. “iFast’s scalable platform business model enables the group to scale up without a proportionate increase in cost. However, we expect a pause in operating leverage as the group is currently building its ePension project in Hong Kong, with substantial contribution only expected in 2024.”
Furthermore, the UK digital bank that the group acquired in 2022 is only expected to breakeven in 2024. “With higher costs and slower growth in revenue, the group is presently not able to enjoy operating leverage. We project the group to achieve operating leverage benefits only in 2024 and beyond,” writes Ling.
As a result, Ling cuts her earnings forecasts on iFast’s weaker margins. “We have reduced FY2023/FY2024 earnings by 20% and 16% on the back of weaker-than-expected margins. We now project net margins of 6.7% for FY2023 and 12.9% for FY2024, compared to 8.7% and 15.4% previously. Margins are expected to improve FY2024 onwards with the expected contribution from the ePension project.”
Shares in iFast closed 8 cents lower, or 1.7% down, at $4.62 on April 28.
