UOB Kay Hian analyst Clement Ho has downgraded iFAST Corporation to &ldquo sell&rdquo with an unchanged target price of $5.12, as Ho deems valuations on the corporation as &ldquo expensive&rdquo .

&ldquo Our target price of $5.12 is based on a valuation peg of 40.3 times 2021 price-to-earnings (P/E), or 2 standard deviation above its 5-year mean,&rdquo writes Ho in a Feb 9 report.

 

&ldquo At the current price, however, valuation for iFAST is expensive at 51.1 times forward P/E. However, we note that earnings derived from the implementation of the e-MPF platform have not been incorporated in our forecasts, given the lack of details at this stage,&rdquo he adds.

 

iFAST, on Feb 5, reported record earnings of $6.83 million for the 4QFY2020 ended December.

 

For the FY2020, iFAST posted record assets under administration (AUA) of $14.45 billion, as funds administered grew across all core markets.

 

&ldquo In terms of product type, unit trusts continue to be the cornerstone of the business at 75% of overall AUA, followed by stocks and ETFs (12.9%), bonds (6.1%) and cash (5.6%). We believe that the Covid-19 pandemic has hastened the trend towards digital adoption in the wealth management industry, and is set to continue unabated,&rdquo notes Ho.

 

On that, Ho expects iFAST&rsquo s top-line, as well as gross and operating margins to continue its upward trend supported by growing AUA.

 

During the quarter, iFAST raised its final dividend to 1 cent per share from 0.9 cent per share in 4QFY2019, bringing its total dividends for the FY2020 to 3.3 cents.

 

The higher dividends still came in lower than Ho&rsquo s expectations as dividend payout ratio was reduced to 42% in 2020 from 89% in 2019 to &ldquo support future expansion plans&rdquo , he says.

 

CGS-CIMB Research analyst Andrea Choong has, on the other hand, maintained &ldquo hold&rdquo on iFAST with a higher target price of $5.67, pegged to 40 times FY2022 P/E.

 

She has also raised iFAST&rsquo s FY2021 and FY2022 earnings estimates by 12% to 26% on expectations of revenue growth at &ldquo new normal levels&rdquo .

 

&ldquo We believe [our target price] to be reasonable given our expected 16-42% y-o-y rise in FY2021-FY2023 net profit. We think that the e-MPF contract win has been priced in at this juncture, and await better entry levels,&rdquo says Choong.

 

On iFAST&rsquo s record earnings and revenue, which came about due to firm trading momentum, Choong noted that the corporation is now seeing &ldquo new normal levels&rdquo of revenue growth.

 

&ldquo We think that steady retail investment appetite and sustained sales via wealth advisors will support FY2021 to FY2023 revenue growth at new normal levels,&rdquo she says.

 

An e-MPF contract win could also boost iFAST&rsquo s net profit by between $3 million to $24 million in FY2023 to FY2029, adds Choong.

 

&ldquo As iFAST is a prime subcontractor in PCCW&rsquo s consortium, our blue-sky scenario analysis of iFAST&rsquo s service agreement with PCCW entails an additional $10 million in annual net profit during the 7-year maintenance period beginning FY2023 assuming 20 basis points (of HK$1 trillion or $170.93 billion MPF AUM) in annual fees, 30% share in fees, and 10% net profit margin.&rdquo

 

&ldquo While a DCF valuation on our scenario analysis yields $8.18 in fair value per share, note that limited information has been disclosed on the fee structure of this venture at present,&rdquo she says.