iFAST Corporation - Temporary Pause In Operating Leverage
- iFAST (SGX:AIY)'s net revenue grew 13.3% y-o-y (+6% q-o-q) to S$29.9m in 2Q22. 2Q22 net revenue included an initial contribution of S$3.9m from iFAST Global Bank in UK. Excluding this, net revenue eased 1.6% y-o-y and 7.9% q-o-q. A broad decline in the value of investment products has offset positive net inflows of S$0.59bn and S$1.26bn in 2Q22 and 1H2022, respectively.
- iFAST India Holdings, a 41.5%-owned associate company of the group, has decided to exit its onshore platform service business in India and pivot to focus on providing global fintech solutions. The Securities and Exchange Board of India (SEBI) announced the discontinuation of the usage of pool account for mutual fund transactions with effect from 1 July 2022. This new regulation has undermined the ability of iFAST India to provide efficient online platform services to its clients.
- With the restructuring of the India business, iFAST has provided a one-time impairment allowance of about S$5.2m. Coupled with higher operating expenses and initial operating losses for iFAST Global Bank, iFAST reported a net loss of S$2.7m in 2Q22. The UK bank is expected to turn profitable in 2024. FY22F net loss is projected to be about S$4m.
- Excluding the impairment loss, iFAST's 1H22 pretax profit of ~S$11m accounts for ~38% of our full-year numbers, below our and consensus’ forecasts.
- Operating expenses are increasing, even as revenue growth moderates in 2022, as iFAST prepares for the ePension business, which will become operational from 2023 and would contribute more significantly from 3Q23 onwards, vs its guidance in April of contribution starting in 4Q23.
- Overall, iFAST is expected to achieve operating leverage from 3Q23 onwards as contribution from the ePension business starts to increase.
- iFAST’s assets under administration (AUA) declined 5.1% q-o-q to S$17.68bn as at 30 June 2022 but rose 0.8% on a y-o-y basis. In 1Q22, AUA eased 2% q-o-q but surged 15.6% y-o-y.
- After factoring in the impairment charges and higher operating costs, we have cut FY22F/23F earnings forecast for iFAST by 60%/4%. We have also imputed a lower AUA growth rate of 5% y-o-y for FY22F, vs 15% previously. Our DCF-based target price for iFAST is reduced to S$4.08 on the back of the cut in earnings and lower terminal growth rate assumption of 3% vs 4% previously. Maintain HOLD call on iFAST.
Above is the excerpt from report by DBS Group Research.
Clients of DBS may access the full report in PDF @ https://www.dbs.com/insightsdirect/.
Lee Keng LING DBS Group Research | https://www.dbs.com/insightsdirect/ 2022-07-26 2022-07-26
Read also DBS Research's most recent report:
2022-10-27 iFAST Corporation - Dragged By Higher Operating Costs
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