Brokers' take: CGS-CIMB upgrades iFast to 'add', raises target price after HK project update

CGS-CIMB has upgraded iFast Corporation to "add" while raising its target price to S$12.50 from S$8.31, after the wealth management platform on Saturday said it has finalised its Hong Kong eMPF (Mandatory Provident Fund) project contract with PCCW Solutions.

Shares of AIY rose to an intraday high of S$8.66 on Monday morning, up 8 per cent or S$0.64, following the announcement, before easing to close 5.6 per cent higher at S$8.47.

In a Monday report, analyst Andrea Choong said she expects investors to start looking past short-term volume fluctuations of the stock as they begin to price in its longer-term earnings potential.

The analyst is estimating an additional S$10 million annual net profit from the eMPF project over the seven-year maintenance period starting from FY2023.

This is assuming 20 basis points (bp) in annual fees, a 30 per cent share in fees and a 15 per cent net profit margin based on data reported by Bloomberg, as specific details on the fee structure of iFast's service agreement have yet to be disclosed.

Sequential earnings will be boosted if the eMPF contract is extended by one to three years, she added.

"As iFast is the prime subcontractor in PCCW's consortium, we think that its service agreement with PCCW could result in additional S$4 million to S$29 million in annual net profit during the seven-year maintenance period beginning FY2023 assuming 20-35bp in annual fees," said Ms Choong.

"More specifically, our scenario assuming 35bp in annual fees, 10 per cent share in fees for iFast and 15 per cent net profit margin (comparable to iFast's average net profit margins over FY2021 to FY2023) equates to S$10 million in additional annual net profit over FY2023 to FY2029."

Last Monday, CGS-CIMB downgraded its call on iFast to "hold" from "add" as the brokerage said it saw limited upside for stronger trading as regional economies reopen. Ms Choong noted in the earlier report that the stock could trade sideways until more details on the company's eMPF contract were released.

Shares of iFast closed at S$8.30 on Tuesday, down 2 per cent.

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