iFast Corporation (SGX: AIY)

iFast Corporation Limited

One Stop Investment Platform
Growth Play

 

Singapore | Financial Service

Investment Merits

New product expansion. 2017 has seen iFast being admitted as a trading member of the Singapore Stock Exchange (SGX) and a clearing member of the Central Depository (CDP). Further on, during Q2’17, iFast Financial, a unit of mainboard-listed iFast Corp, launched its stock-dealing service for Singapore listed stocks and exchange-traded funds (ETFs) on its online platform FSMOne. Lately, in Dec 2017, iFast Financial Pte Ltd announced its offering of US-listed securities dealing services to investors, including stocks and Exchange Traded Funds (ETFs).

Strong FY 2017 result; AUA grew 21.3% y-o-y.  FY’17 also saw iFast posting 118.5% increase in group net profit as compared to the same period a year ago. Net revenue (Revenue less Commission and fees payable to third party financial advisors) increased 21.5%. AUA grew 21.3% yoy to hit a record high of 7.58billion as at December 2017. Earnings per share (EPS) rose 65.2% to S$3.37 from S$2.04. The strong performance in 2017 has seen iFast soaring new heights, this trend is likely to continue, especially when investors can now invest in the US market.

Continual growth with negligible debt. Since going public, iFast has been growing organically. Coupled with constant stream of recurring revenue, iFast’s low gearing ratio of 0.9%, will afford itself financial flexibility to grow through acquisitions, should a feasible opportunity arise.

 

Key Risk

Vulnerability to Market Sentiments. With interest rates still at historical low (picking up slowly), market sentiment has been generally bullish. As iFast operates in the investment aspects of the business, should the bullish market sentiment tapers, it may affect the AUA as clients may be less willing to invest in distressed condition.

Potential implication if trailer fee becomes regulated. As more than 60 percent of recurring revenue comes from trailer fees, its net profit is likely to take a hit if the region iFast operates in, starts to regulate.

 

Outlook and Strategy:

Going forward, iFast is capable of reaping the benefits from their efforts in (i) augmenting its platform’s capability, (ii) acquisitions of companies and (iii) broadening & deepening of its product line and services.

Singapore: Being the largest revenue contributor for the group, it is expected to benefit from the admission as a trading member of the Singapore Stock Exchange (SGX) and a clearing member of the Central Depository (CDP)and FSMOne system.  In addition, the new offering of US-listed securities dealing services to investors, can help to drive traffic and raise AUA.

Hong Kong: Net cash inflow from B2B and B2C clients rose more than 10 times YoY in Q3’17. AUA and net revenue had grown 27.4% and 25.9% YoY in FY’17. As investment sentiments in the bonds and unit trusts gain traction, it is expected that this positivity will extend into 2018.

Malaysia: Introduction of bonds into the product line and launching of robo-advisory service have attracted more clients (B2B/B2C) to open more investment accounts. As such, AUA and revenue had grown 55.8% and 70.6% respectively in FY’17. As FDI flows into Malaysia economy, business sentiment is likely to improve and will provide a rosy backdrop for their equities market. This will in turn boost market sentiment which shall propel their Malaysia business.

China: Despite being loss-making, the loss quantum has reduced by 26.6 million as compared to the same period last year. A possible reversal of loss is likely to happen in the coming months, especially after an encouraging Q4’17 result. iFast has built its own financial advisory team and engaged more third party financial advisors to help promote its branding in China. Acquiring a minority stake in Beijing Financial Alliance Technology (BFAT), is likely to bring in more potential B2B partners and thus improve sales.

 

Valuation:

In valuing the company, the DDM (Gordon Dividend Discount Model) is used, with an estimated dividend growth of 3% – 4% (base case). This resulted in target price of S$1.10, a 23% upside from the current market price of S$0.895.

This potential upside is also supported by complementing technical signals. Since Apr’17, there had been a surge in share price, bringing price above the IPO price for the first time in 8 months. At its current price of S$0.895, iFast is trading near support, with the nearest resistance at S$1.00.

 

SWOT Analysis

 

·         Strong Branding; established local player with vast product line

·         High barrier to entry as financial industry is highly regulated

·         Strong technology adoption culture, which resulted in less reliance on third party applications

·         Strong management team with the vision to provide a stress-free investing experience through low cost and vast product line

 

·         Operations in China is dragging the group’s performance as there is a weaker use of efficiency (staff cost and cost payable to third party advisors increase faster than the revenue growth)

·         Although FY’17 has seen the reduction in losses in the China market, iFast may see a longer turnaround time to be profitable in that market despite it being optimistic

Opportunities Threat
·         Ability to tap on cross border product lines and offshore investments across the operating regions (i.e Singapore B2B/B2C clients can buy into China/India market through its FSMOne platform)

·         One stop solution for B2B/B2C clients to utilise the wide range of products instead of sourcing for multiple quotation and face various stakeholders

·         Despite the unique business model, competitions from new technology can potentially disrupt iFast’s operation

·         Fee’s compression is common in this industry in all parts of the world, which can affect the overall profitability and fees arrangement

·         Rules and regulation are everchanging in this industry and iFast is subjected to the constant change.