Brokers' take: UOBKH downgrades iFast to 'hold', DBS lowers target price

SOME analysts are turning bearish on iFast Corporation after its latest financial results came in below expectations.

UOB Kay Hian (UOBKH) has downgraded the counter to "hold", with a lower target price of S$5.17 from S$9.84. Based on its last closing price of S$5.66, this is a potential downside of 8.7 per cent.

Based on UOBKH's new target price, iFast : AIY 0% is valued at 40.3 times of the company's estimated earnings per share for 2022, otherwise known as its price-to-earnings ratio, a common measurement used for valuing companies.

While DBS still maintains a "buy" rating, it lowered its target price for the fintech platform to S$8.75 from S$10.85 previously. DBS estimates reflect a potential upside of 55 per cent from its last closing price.

iFast announced over the weekend that it posted a near 35 per cent year-on-year drop in net profit to S$5.74 million for the first quarter of 2022, as global stock market conditions turned sour.

Net revenue for the quarter was 1.2 per cent lower at S$28.15 million, while operating expenses rose 10.4 per cent year on year to S$21.12 million in Q1 2022.

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The main impetus behind UOBKH's decision to downgrade iFast was its quarterly decline in the amount of assets under administration (AUA), said its analyst Clement Ho in a report on Monday (Apr 25).

The fintech platform's AUA fell 2 per cent quarter on quarter to S$18.63 billion as at Mar 31, 2022, on the back of declines in stock and bond prices globally. When comparing on an annual basis, the company's AUA was actually up 15.6 per cent.

The slower AUA growth, in addition to higher operating expenses, have led DBS to lower its net earnings estimate for iFast by 17 per cent in 2022 and 20 per cent in 2023, said its analyst Ling Lee Keng in a research note on Monday.

This is partly contributed by a lowering of the growth assumption for AUA to 15 per cent year on year for FY2022, down from the previous estimate of 20 per cent.

Due to the earnings cut, DBS reduced its target price to S$8.75 based on the discounted cashflow methodology.

However, UOBKH increased its earnings estimate for iFast based on greater clarity on the targets of its new ePension division in Hong Kong, even though the decline in AUA is expected to lead to a valuation de-rating in the near term.

The ePension division in Hong Kong, which offers pension scheme operation and administration services, is expected to contribute a net revenue of S$25 million in 2023, accounting for 15 per cent of the group's net revenue, and S$100 million in 2024, which make up 33 per cent of the company's net revenue. These estimates are lower than the guided targets provided by iFast.

The company is expected to rake in S$169.8 million in revenue in 2023, 13 per cent higher than the previous S$150.9 million estimate. As for 2024, UOBKH projects revenue to come in at S$303.8 million, 31 per cent higher than its previous estimate of S$231.8 million.

Net profit estimates for 2023 have also been raised by 18 per cent to S$47.9 million, and by 54 per cent to S$115.9 million in 2024.

DBS said that iFast would be able to increase profitability between 2023 and 2025 after its ePension division becomes a strong contributor.

Despite the lower target price and a downgrade in ratings, both analysts remain positive on its long-term plans.

UOBKH believes that iFast's strategy to increase its scale through product offerings and geographical reach would provide superior competitive advantage in the Asian region, while DBS said there is still strong growth momentum propelled by its Hong Kong business and the potential to capture more market share in Singapore.

Shares of iFast were trading at S$5.28, down S$0.38 or 6.7%, as at the midday trading break on Monday.