• iFAST's record-high FY20 results met expectations, benefiting from increasing digital adoption.
• Obtaining operating leverage from scalable business model; iFAST's FY20 net margins improved to 12.4%, from 7.6% in FY19.
• Revised FY21F/ FY22F earnings estimate up by 12%/ 13% on higher margins; have not factored in eMPF project.

IFAST Reported Record-high FY20 Results, Benefiting From Increasing Digital Adoption

• In-line FY20 results. iFAST Corporation (SGX:AIY)'s 4Q20 net profit grew 127.5% y-o-y (+10.7% q-o-q) to a record high of S$6.8m on the back of a 41.6% y-o-y (+6.5% q-o-q) gain in revenue to S$47.9m.
• On a full-year basis, iFAST's FY20 net profit jumped 122.3% to S$21.2m while revenue surged 35.5% to S$169.9m, in line with our forecasts.

High dividend declared but lower dividend payout ratio.

• A final dividend of S$0.01 was declared, bringing iFAST's FY20 full-year diviend to S$0.033 (vs. S$0.0315 in FY19), implying a payout ratio of 42%, vs 89% in FY19.
• Going forward, iFAST expects to declare a gradual increase in dividend.

Obtaining operating leverage from scalable business model.

• The growth in profit was substantially higher than the growth in revenue, showing the positive operating leverage and scalability of the group’s business model. Net margin improved to 12.4% in FY20, from 7.6% in FY19.

Higher contribution from stocks and ETF leading to higher non-recurring revenue.

• Recurring net revenue accounts for a lower 75.8% of iFAST's total net revenue, vs about 80% last year, mainly due to the increase in contribution from the non-recurring segment, in particular, stocks and ETF.
• The non-recurring net revenue surged 107.7% y-o-y in FY20, vs 14.1% for the recurring segment.

Strong growth from key market Singapore; China operation still loss-making.

• iFAST's key market Singapore registered strong growth in net earnings of 114% y-o-y for FY20.
• Continued losses seen in the China operation, with net loss of S$4.9m, similar to FY19. We expect this trend to continue at least till FY22F or beyond.

Record-high AUA of S$14.45bn.

• iFAST's assets Under Administration (AUA) as at 31 December 2020 surged 44.5% y-o-y to S$14.45bn. Besides improved market sentiment in recent quarters, the strong growth in the group’s AUA was on the back of significant net inflows of funds, as the group continued to improve the range and depths of products and services offering on its platform.

Continue to Expect Strong Growth Ahead

• iFAST is now reaping the fruits of its labour. AUA has been growing steadily over the past few years, especially in the last two years. AUA for iFAST grew at a 2-year CAGR (FY18-FY20) of 34%, vs 10% from FY17-FY19 for the industry.
• With the expanding range of products and services, coupled with the boost from COVID-19 that helped to accelerate to rate of digital adoption, we currently expect AUA to grow 30% in FY2021 and another 20% in FY2022F.
• The current strong growth in momentum will provide tailwind for future growth. We continue to expect iFAST to grow faster than the industry, riding on its scalable business model and expanded product range.

Revised IFAST's FY21F/ FY22F Earnings Forecast Up by 12%/ 13%

• We have raised our iFAST's net profit margin forecast to 14% / 14.9% in FY21F/ FY22F, from 12.5% and 13.1% previously, as the operating leverage factor has kicked in strongly in the last few quarters. In 4Q20, net profit margin was 14.3% while 3Q20 saw net margin of 13.7%.
• With the higher margin assumption, net earnings forecast for iFAST is FY21F/ FY22F is raised by 12%/13% respectively.
• We have not factored in potential contribution from the eMPF project, pending more details from the company. The details on the eMPF project is still pending finalisation.

Maintain BUY on IFAST; Target Price Raised to S$7.64

• We have lowered iFAST's dividend payout ratio assumption to 20%, from 15% previously, which is still conservative.
• iFAST targets to grow AUA to S$100bn by 2028, at 28% per annum. We maintain our AUA growth assumption of 30% in FY21F, and another 20% in FY22F.
• With the above assumptions, our target price rises to S$7.64. We are more optimistic on iFAST given its scalable business model and drive towards digitalisation to propel the group to greater heights.

Source: DBS Research - 8 Feb 2021