iFast Corporation’s blowout 4QFY2023 has prompted analysts to raise their target prices on the Mainboard-listed company.
To an analyst at CGS International Research, for example, the wealth management platform operator’s stock is worth 54% more following the release of its FY2023 ended December 2023 results on Feb 22.
After a disappointing FY2022 that earned iFast a wave of downgrades, iFast reported net profit for 4QFY2023 that increased more than eightfold while its full-year net profit more than doubled to $28.27 million.
iFast CEO Lim Chung Chun attributes the surge in profit to initial contributions from the company’s ePension division in Hong Kong, as well as improvements in its core wealth management platform business.
iFast’s core business is active in Singapore, Hong Kong, Malaysia, China and the UK. It exited India in 2QFY2022, posting a net loss of $2.69 million that quarter due to a one-off impairment of $5.2 million from its associate, iFast India Holdings.
Group assets under administration (AUA), which had slipped between 2QFY2021 and 2QFY2022, reached a record high for the second consecutive quarter — rising 13.8% y-o-y to reach $19.83 billion as at Dec 31, 2023.
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However, iFast’s AUA target of $100 billion has been extended from “by 2028” previously to “between 2028 and 2030”. Lim says the firm “still wants to shoot for 2028”, but concedes that “things have grown more slowly” over the past two years.
To achieve the 2028 target, the CAGR of AUA growth would have to come in “at about 36%”, says Lim. To hit that in 2030, however, CAGR could be lower, at 26%, he adds.
Hong Kong surge
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Analysts are perhaps charmed by three promises from iFast’s management — with one already logging revenue. In Hong Kong, iFast is one of the builders of the mandatory ePension platform project.
According to management, the ePension business will be an “important growth driver” in 2024 and 2025.
The figures speak for themselves — iFast’s Hong Kong business, inclusive of its core wealth management services, beat the firm’s FY2023 gross revenue, net revenue and profit before tax (PBT) targets, which were first shared in April 2022.
Further illustrating this is iFast’s PBT in Hong Kong, which had stalled at $8.39 million and $8.07 million in FY2021 and FY2022 respectively, but surged 194.4% y-o-y to $23.82 million in FY2023.
The main revenue will be an “ongoing service fee” that iFast began collecting from September 2023.
This recurring fee will increase as the onboarding rate grows, says Lim, and he believes this revenue will grow till 2025.
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That said, management has lowered its 2024 and 2025 targets for Hong Kong revenue while maintaining its PBT targets, due to a delay in onboarding ePension trustees and softer earnings expected from the core wealth management business.
Beyond 2025, fee growth “won’t be as substantial in terms of percentage”, says Lim. But “it won’t drop off”, he adds, as the ePension service has been contracted for at least seven years.
Digital bank to break even
iFast’s second catalyst is the UK-based digital bank it acquired in April 2022, which management targets will break even in 4QFY2024.
iFast Global Bank (IGB) posted wider losses of around $8.60 million in FY2023, 70.8% higher y-o-y. This was reportedly due to higher operating expenses (opex) linked to the launch of digital personal banking (DPB) services in April 2023 alongside the bank’s Digital Transaction Banking (DTB) services, which was launched in late 2022.
IGB’s FY2023 opex of $21.93 million overwhelmed net revenue of $12.35 million, and both figures rose by around 50% y-o-y.
One bright spot is IGB’s customer deposits, which leapt 53.4% q-o-q and 257.9% y-o-y to GBP213.5 million ($358.6 million) as at Dec 31, 2023. UK residents accounted for about 30% of the deposits, and residents from over 60 countries made up the rest.
iFast places these deposits with the Bank of England to gain a spread without taking balance sheet risk, says Lim. An additional avenue for spread would be to invest these funds in investment-grade bonds, he adds.
Lim is confident that the break-even will happen by year-end, driven by net interest income. This is despite the risk of an interest rate pivot.
IGB is flush with cash, with its liquidity coverage ratio (LCR), net stable funding ratio (NSFR) and total capital ratio at 728%, 345% and 36% respectively as at Dec 31, 2023 — well above regulatory minimums of 100%, 100% and 12.91% respectively.
With ample liquidity, could IGB explore commercial loans soon? Margin financing is an area of interest, says Lim, but iFast will remain “relatively conservative” when managing its loan-to-value (LTV) ratio. “We don’t think we need to lend out the majority of deposits.”
Global digital bond marketplace
iFast’s third catalyst is its plan to build a global digital bond marketplace out of Malaysia.
In January, iFast Malaysia subsidiary Bondsupermart obtained approval-in-principle from the Securities Commission Malaysia to be registered as a Recognised Market Operator (RMO).
According to Lim, the RMO licence allows Bondsupermart’s clients to submit bids and offers, similar to purchasing stocks on the Singapore Exchange S68 (SGX), says Lim. This is an improvement from the current system, which requires clients to request for a quote.
Bondsupermart aims to launch bond marketplace activities in 2H2024. According to Lim, iFast had faced some restrictions when applying for the corresponding licence in Singapore as it is involved in “related market-making activities”.
Nevertheless, while it is licensed in Malaysia, Lim says Bondsupermart can reach investors globally.
He likens this to Singaporean investors trading shares on a US exchange, where brokers handle the cross-border trade. Bondsupermart will target iFast’s existing markets of Singapore, Malaysia and Hong Kong as a “starting point”, says Lim, but this could expand to other countries in the future.
Higher target prices
Among four broking houses, UBS Global Research issued the highest target price. UBS analysts Aakash Rawat and Benjamin Tan further increased their price target to $10.50 in a Feb 22 note while maintaining “buy” on iFast, up from $10 in November 2023 and $6.50 prior.
“We continue to expect a sharp pickup in net profit led by contribution from the ePension division, driving our expectation of a 53% FY2024–2026 earnings per share (EPS) CAGR.”
Analysts from other broking houses are more measured, keeping “hold” on the Mainboard-listed company.
CGS International Research analyst Andrea Choong is the next-most bullish, raising her target price to $9.10 in a Feb 23 note from $5.90 previously, while citing “possible project delays” and “‘q-o-q earnings volatility”.
“While iFast offers improving sequential net profit growth in FY2024-FY2025, we are cognisant of further implementation and financial delays,” writes Choong.
She also complains about the “opacity” of the ePension project onboarding process.
Meanwhile, iFast’s “hypergrowth” in earnings beat UOB Kay Hian (UOBKH) Research analysts Heidi Mo and John Cheong’s fullyear forecast by 18%.
In a Feb 23 note, the UOBKH analysts raised their target price to $8.56 from $6.56. That said, they have trimmed their FY2024–FY2025 earnings estimates by 2% and 1% to $49 million and $82 million respectively.
Finally, DBS Group Research analyst Ling Lee Keng has raised her price to $8.33 from $6.95. In her Feb 22 note, Ling notes an improvement in margins, “but operating expenses ahead could remain high”.
Dividends vs banking ambitions
With its share price up some 43% over the past year, iFast is moving away from being a dividend stock. The final dividend of 1.4 cents and total dividend of 4.8 cents are both unchanged since FY2021.
The payout ratio, however, has whipsawed over the past three years, at 37%, 114.29% and 50.05%.
Going forward, iFast intends to increase dividend per share in FY2024, says Lim. “We are essentially balancing the ability and intention to reward shareholders, to pay out more dividends, with our pretty strong ambition of building our overall banking business.”
iFast’s shareholders’ equity, which increased to $250.2 million as at Dec 31, 2023, from $222.49 million the year prior, is “still small in the overall context of the banking world”, says Lim.
“Over time, we want the shareholders’ equity to continue to grow. For 2024, while [the] dividend per share will be increased, we don’t think that we’ll be paying out 50% in terms of payout ratio; it should be less than 50%.”
Infographics: iFast
