Nevertheless, Choong is raising iFast’s target price to $8.31 from $8.00 previously, representing a 6.0% downside.
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Noting that 2QFY2021 net profit missed consensus expectations, Choong sees limited upside for even stronger trading volumes in the coming months, with regional economies poised to reopen, albeit in various stages.
As net revenues slid 8.2% q-o-q, though up 32% y-o-y, operating margins eased to 16.6% in 2QFY2021. 1HFY2021 earnings formed 40% of Choong’s FY2021F estimates. iFast declared interim dividend per share (DPS) of 1.1 cents in 2QFY2021, bringing 1HFY2021 DPS to 2.1 cents. “We cut DPS expectations to 4.7 cents (approximately 40% payout) in FY2021F, in line with our lower revenue estimates,” writes Choong in a July 26 note.
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Choong notes that stock and ETF volumes have started to ease at the company. “The easing of AUA growth was broad-based across markets; Singapore was the key growth driver in 2QFY2021. In tandem, revenues were weaker q-o-q across all markets except Hong Kong, which held steady. China remains loss-making but its losses have stabilised ($1.4 million loss in 2QFY2021).”
There is scope for further fund administration and distribution opportunities, writes Choong. The pace of AUA growth slowed to 8.9%, compared to 12-23% q-o-q over the past four quarters.
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iFast entered into a Business Transfer Agreement with DWS Investments Singapore for the transfer of its fund management business (involving about $600 million in AUM) in April. Excluding funds already distributed by iFast, this arrangement will add some $400 million to total AUA by end-July, but margins will be lower than its broader unit trust business as iFast will only be handling the administrative aspects of these funds, says Choong.
“Nonetheless, we are positive that the initiation of this arrangement could open up opportunities for iFast to offer administration and distribution (e.g. expansion into retail base) services going forward,” writes Choong.
“With regional economies poised to reopen (albeit in various stages), we see limited upside for even stronger trading volumes in the coming months and cut FY2021-2023F earnings per share (EPS) by about 12-19% on weaker revenues,” says Choong.
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As at 12.20pm, shares in iFast are trading 1 cent lower, or 0.11% down, at $8.83.
Photo: Albert Chua/The Edge Singapore
