Broker's take: UOBKH downgrades iFast to 'sell', maintains S$5.12 target

UOB Kay Hian (UOBKH) has downgraded its recommendation on iFast Corporation to "sell" from "hold" on valuation grounds.

The brokerage maintains its target price for iFast at S$5.12, which is based on a valuation peg of 40.3 times FY2021 price-to-earnings (P/E), or two standard deviation points above iFast's five-year mean.

In a Tuesday report, analyst Clement Ho opined that the valuation for iFast is now expensive at the share price of S$6.21, which implies a 51.1 times forward P/E.

Earnings derived from the implementation of the group's Hong Kong e-MPF platform have yet to be incorporated into the forecasts, given the current lack of details, he added.

UOBKH's downgrade on iFast came after the group reported Q4 financial results that were in line with expectations, as quarterly net profit jumped 127.5 per cent year on year to S$6.8 million on the back of positive operating leverage.

However, its higher FY2020 distribution per share (DPS) of 3.3 Singapore cents compared to 3.15 cents a year ago was lower than what UOBKH expected. This was because the dividend payout ratio was reduced to 42 per cent for year in review to support future expansion plans, versus the 89 per cent dividend payout ratio in 2019, said Mr Ho.

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Nonetheless, he remains positive on iFast's assets under administration (AUA) growth which he deems resilient amid the ongoing Covid-19 pandemic. He believes this will contribute to continued topline expansion for the group going forward.

As at end-2020, the group's AUA had hit a quarterly peak of S$14.45 billion after registering growth across all of its core markets, while unit trusts continue to be the cornerstone of the business at 75 per cent of overall AUA.

"iFast has consistently captured the demand for wealth management as its percentage of managed wealth in Asia grows. The Covid-19 pandemic may have played a role in hastening the shift towards digitalisation in the wealth management industry. The trend has been set in motion and we believe it will continue as Asian economies recover towards growth territory," Mr Ho said.

In a separate report on Thursday, CGS-CIMB reiterated its "hold" call on iFast with a higher target price of S$5.67 versus S$4.15 previously.

Its analyst Andrea Choong thinks the e-MPF contract win has been priced in, and expects its contributions to commence in FY2023 to provide the group an additional estimated S$3-24 million in annual net profit over the next seven years.

"Our target price is raised to S$5.67, pegged to 40 times FY2022 P/E, which we believe to be reasonable given our expected 16-42 per cent year-on-year rise in FY2021-23 net profit. We think that the e-MPF contract win has been priced in at this juncture, and await better entry levels," she said.

Meanwhile, DBS is more bullish on iFast's growth prospects. In its report issued on Monday, the research house maintained its "buy" call on the stock with a higher target price of S$7.64 versus S$6.40 previously, after factoring in a higher margin assumption based on its latest set of results.

It has raised net profit margin assumptions to 14 per cent in FY2021 and 14.9 per cent in FY2022, from 12.5 per cent and 13.1 per cent previously.

"We are more optimistic on iFast given its scalable business model and drive towards digitalisation to propel the group to greater heights," said DBS analyst Lim Lee Keng.

Shares of iFast ended Tuesday up S$0.03 or 0.48 per cent higher at S$6.24.

READ MORE:

• iFast looking to balance dividend growth with expansion opportunities

• iFast Q4 net profit more than doubles to S$6.8 million on higher revenue