Brokers' take: Citi cuts iFast TP on dilutive M&A, possible Q4 earnings miss

WEALTH management platform iFast Corporation is likely a risky investment due to its dilutive merger and acquisition plans, and uncertainty surrounding its near-term earnings, said Citi Research.

The research team cut its target price for iFast to S$6.20 from S$7.50, to factor in the loss-making financials of the company's recent acquisition, BFC Bank.

Citi also maintained its "sell" call on the counter, despite iFast's share price having closed below S$7 for the first time since May 2021, as it expects the market is likely over-optimistic on iFast's Hong Kong pension project contract, and that rising real yields have played out.

Shares of iFast ended trading at S$6.33 on Thursday (Jan 27), down S$0.51 or 7.46 per cent.

Citi is cautious of execution risks in BFC Bank. The acquisition, together with the private placement to raise funds, will likely also hit earnings estimates for the company by 15 per cent in FY2022, 9 per cent in FY2023 and 6 per cent in FY2024.

Meanwhile, to account for the higher number of shares from the placement, the research team cut its dividend per share estimates for FY2022 to FY2023 by 14 per cent.

Citi also highlighted the possibility of iFast missing the market's "huge expectations" for its fourth quarter earnings, as the company may continue to incur project fees - similar to the Hong Kong project fees it recognised in the third quarter - albeit in lower magnitudes.

Furthermore, iFast's platform margins may continue to face pressure in 2022 amid competition, as robo-advisory fintech Syfe and payment fintech Revolut launch their own online brokerage services. Citi noted that mobile downloads for iFast's FSMOne Mobile app had already decreased by 4 per cent on quarter in the fourth quarter.

Earlier in January, iFast announced it would acquire a majority stake in BFC Bank to accelerate the growth of its overall wealth management business, and had issued 14 million shares at S$7.50 each to help fund the acquisition.

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