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Jefferies (NYSE:JEF) analyst initiated coverage on iFAST (FSE: 1O3 | SGX:AIY) with a “Buy” rating and Target Price of S$4.35, noting its continued Assets Under Administration (AUA) asset revenue growth profile. The report reiterated the iFAST’s current financial position as well as its past and future growth.
Revenue Growth Supported by Solid Business Model, Customer Base, Investment Products and Network of Advisors/Consultants
The Business-to-Business (B2B) model consists of advisory firms and Financial Institutions (FIs) who pay platform fees and wrap fees in addition to the trailer fees for distribution from fund houses.
The expansion is noteworthy as the number of customer accounts is now twice the previous number while investment products have shown a four-fold growth since 2015.
iFAST has stayed up-to-date with relevant licenses to run financial centers in Singapore and Hong Kong, and in China, Malaysia and India, thus benefiting from onshore and cross-border wealth flows.
Also, iFAST’s technology platform provides it with the ability to expand.
The Jefferies analyst noted that iFAST maintains distribution agreements with 260 funds, over 11,000 investment products, serving to 420,000 customer accounts with 8,500 financial advisers. This B2B base accounts for over 70% of AUA and 80% of the company’s revenue, the analyst noted.
The Net recurring revenue has increased at approximately 11% Compound Annual Growth Rate (CAGR) since 2015. Additionally, the platform benefits from higher growth of non-recurrent transactional fees and foreign exchange (FX) conversion margins. This revenue has risen at 28% CAGR.
Considering the above, the analyst sees the company positively – predicting that AUA will continue to grow around 20% similar to the 18.4% CAGR since 2015.
Catalysts and Drivers That Fill the Gap: Technology and the Pandemic
McKinsey’s June 2020 report on Asian Wealth Management looked at factors such as increasing wealth, under-penetrated advisory, and a digital-savvy customer base. The report said that the revenue pool is expected to increase by 27% until 2025. Affluent and mass affluent sections with assets over US$1million are expected to contribute 50-60% of the incremental growth. Another significant factor is that the advisory and financial planning segment remains under-penetrated since managed assets have a share of approximatley15-20% of the region’s personal financial assets. The analyst noted that pandemic is also a contributing factor, especially with measures like social distancing and Work from Home (WFH) that led to wealthy customers switching to online channels, aligning with asset managers and distributors efforts to improve the product-channel relationship.
Premium Valuation, Says Analyst’s Report
The report also acknowledged the company’s failure to obtain a digital bank license, but justified its rating with the above factors and said the digital network “demands a valuation premium.”
While acknowledging that iFAST has historically traded at 39x FY21 EPS, the report considered the franchise as a whole and its expected AUA/earnings growth, opining that the premium valuation is justified and results in only a 1x Price/Earnings-to-Growth (PEG) ratio.
The report calculated the Target Price of S$4.35 by taking 40x FY21E EPS of S$10.91.
The analyst noted risks such as the AUA growth slowdown and the consequent negative effect on regulatory pressure, operating leverage, changes in the product mix.
Based in Singapore, iFAST is a leading wealth management FinTech platform focused on the growing wealth of digital-first customers. It has a strong distribution brand supported by an intricate network of financial intermediaries, investment products HNW customers, and licenses/agreements in the financial centers of Singapore and Hong Kong as well as in China, India, and Malaysia. The market cap of the company to about S$2.8 billion (€1.74 billion).
For more information about the research report, contact Jefferies’ sales representative or go to Jefferies – Equity Research.
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