Brokers' take: CGS-CIMB downgrades iFast to 'hold' on limited volume growth outlook

CGS-CIMB has downgraded its call on iFast to "hold" from "add" as it sees limited upside for stronger trading when regional economies reopen in the coming months.

The brokerage has nonetheless raised its target price on the stock to S$8.31 from S$8 previously, with the new target pegged to 56 times FY2022 price-to-equity or two standard deviation points above the mean.

In a report on Monday, analyst Andrea Choong noted a broad-based easing of the wealth management platform's assets under administration (AUA) over Q2 FY2021 along with a moderation of stockbroking momentum, which led to a rising quarter-on-quarter proportion of recurring to non-recurring revenue to 74:26 in Q2 versus 64:36 in the previous quarter.

"We think that this ratio could hover at current levels if stockbroking volumes taper over the medium term," commented Ms Choong, adding that the stock could trade sideways until more details on the company's eMPF Platform contract are released.

On the expectation of weaker revenues, the CGS-CIMB analyst has cut iFast's FY2021-2023 earnings per share estimates by 12 to 19 per cent. She now anticipates an FY2021F distribution per share of 4.7 Singapore cents in FY2021, which represents a 40 per cent payout and is in line with the lower revenue estimates.

Following the release of iFast's latest set of financial results, DBS Group Research has also raised its target price on the stock to S$12.10 from S$10.55 to reflect a slightly lower weighted average cost of capital and higher amortisation of intangible assets.

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The research house's "buy" call and earnings estimates for iFast remain unchanged.

"We maintain our AUA growth assumption of 30 per cent in FY2021 and another 20 per cent each in FY2022 and FY2023," said DBS analyst Ling Lee Keng in a separate report on Monday.

Ms Ling is expecting the group's earnings for FY2021 to FY2023 to grow by 54 per cent, 31 per cent and 49 per cent, respectively.

"The projected 49 per cent growth in earnings for FY2023F is partly boosted by maiden contributions from the eMPF project. We have included a conservative S$10 million contribution to our FY2023 earnings projection," she added.

As at 11.20am, shares of iFast were trading S$0.01 or 0.1 per cent higher at S$8.85.