At iFast's results briefing and annual general meeting on April 28, one shareholder called this phenomenon "really incredible", asking management if the market had misinterpreted iFast's business model "and the good work you have done".
The likely reason is that iFast has lowered its FY2025 Hong Kong profit before tax (PBT) target to HK$380 million ($64.12 million) from HK$500 million, citing a "steeper ramp-up in resources and operating expenses" than originally planned for its ePension project.
As part of a seven-year contract, iFast is onboarding trustees of Hong Kong's mandatory pension fund to a digital platform. In FY2024, iFast posted HK$309 million in PBT from its Hong Kong operations, which includes its core wealth management business, well above its forecast of an excess of HK$250 million.
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In response, iFast chairman and CEO Lim Chung Chun said he "did expect some negative reaction on the share price" but the 12% drop was greater than expected. "I thought that on an overall basis, it's quite clear that we are still growing in a healthy manner."
Lim also acknowledged a "perceived share price overhang" after its second-biggest shareholder, CP Invest, pared down its stake. CP Invest, a wholly-owned subsidiary of Cuscaden Peak, has a 9.75% direct interest in iFast as at March 7, according to iFast's latest annual report. At the same time, Temasek Holdings has a 9.82% deemed interest in iFast through Cuscaden Peak and DBS Group Holdings.
'Intensified hiring'
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iFast began collecting an "ongoing service fee" for its ePension project in September 2023, which has increased alongside onboarding. iFast's PBT in Hong Kong, which had stalled at $8.39 million and $8.07 million in FY2021 and FY2022, respectively, surged 194.4% y-o-y to $23.82 million in FY2023.
iFast has trimmed its forecasts for Hong Kong over the years. The company faced an eight-month delay when building its ePension platform, which was announced in January 2023. In February 2024, iFast lowered its FY2024 and FY2025 Hong Kong revenue targets while maintaining its PBT targets due to a delay in onboarding ePension trustees and softer earnings forecasts from wealth management. iFast then trimmed this FY2025 PBT target on April 25.
According to Lim, iFast is hiring more staff to resolve these "teething issues" as it onboards more trustees. "We're talking about the entire pension money of all the Hong Kongers. It is a massive project that the Hong Kong government and the whole [of] Hong Kong are very concerned about. Given that there were a little bit of operational hiccups in some of the initial phases of onboarding, we have decided that the right and prudent thing to be doing is really to increase the amount of resources that we're putting [into] this project."
The Edge Singapore asked about Lim's plan to "significantly" increase manpower. In response, a spokesperson says the ramp-up in manpower resources "had already outpaced the corresponding revenue growth in 1QFY2025". "This trend is expected to intensify, leading to the revision of the PBT target for the overall Hong Kong operations for FY2025."
Still, iFast targets "double-digit growth in revenue and profit" for the overall Hong Kong operations for FY2026.
iFast's role in the ePension project is to provide operational and user administration functions. The employees supporting the project are mostly based in Hong Kong and Malaysia.
While iFast declined to reveal targets for its "intensified hiring", its financial statements reveal that staff costs excluding equity-settled sharebased payment transactions rose 10.6% y-o-y to nearly $17.4 million in 1QFY2025.
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The company's statements attribute this to "an increased number of staff supporting the group's ePension division over the period".
iFast expects the revenue and profit of the ePension division to be higher in 2HFY2025 as the overall onboarding "progresses to a substantially higher level", according to the spokesperson.
Analysts lower targets
UOB Kay Hian Research (UOBKH) analysts Heidi Mo and John Cheong have upgraded iFast to "buy" but with a lower target price of $7.28 from $8.30 previously.
In an April 29 note, they cite the cut in Hong Kong PBT guidance. "While the Hong Kong ePension division has contributed significantly, only six out of 24 schemes ... have been onboarded in ascending order of assets under management (AUM). Given the technical and operational risks for schemes with larger AUMs as well as the ongoing ramp-up in staff headcount, we maintain a conservative outlook."
Meanwhile, DBS Group Research analyst Ling Lee Keng has kept her "buy" call but also with a reduced target price of $9.22, down from $10.88. "[iFast's] ePension division - the primary growth engine - is expected to contribute meaningfully in 2HFY2025 as onboarding of the larger trustees ramps up."
Both UOBKH and DBS say iFast's 1QFY2025 results came in below expectations. iFast's $19 million patmi for the latest quarter came on the back of 24.4% higher gross revenue of $107 million. Respectively, this accounted for 18% and 19% of UOBKH's full-year forecasts, and 19% and 20% of DBS's FY2025 forecasts.
While CGS International Research analyst Tay Wee Kuang has maintained "add" on iFast, he slashed his target price to $7.70 from $9.50 in an April 29 note.
Even UBS Global Research analysts Aakash Rawat and Benjamin Tan have cut their fair value estimate to $9 following the latest set of results.
UBS is a longtime bull; while their "buy" call remains, Rawat and Tan's latest report ends their $10.50 target price, which had been in place since February 2024.
"The higher-than-expected opex for ePension and downgrade of PBT guidance caught us by surprise," write the UBS analysts in an April 28 note.
Compared to iFast's revised FY2025 PBT guidance of HK$380 million, or around $64.12 million, Rawat and Tan think the actual figure could be lower, at $54.5 million for FY2025 and $60 million for FY2026. This is down from their previous estimate of $75 million for each year.
Table: iFast
