Results Analysis: ePension business progressing well

• Upgrade to BUY with higher TP of S$9.57 key growth driver, ePension business, reports strong progress    
•   Strong set of 1Q24 results with significant contribution from ePension division, within expectations
• Record high AUA of S$21.05bn, +16% y-o-y, outperformed the 4.3% gain for the broader market
• Increasing recurring revenue boosted by higher AUA and contribution from ePension division 

 

Strong set of 1Q24 results with significant contribution from ePension division, within expectations.  Net profit for 1Q24 surged 387% y-o-y (+10.1% q-o-q) to $14.5m, on the back of a 59.4% increase (+1.8% q-o-q) in gross revenue to $86.0m, driven by contributions from the ePension division, as well as improvements in the group&rsquo s core wealth management platform business. 1Q24 revenue and net profit accounted for 21% and 24% of our forecasts respectively, within expectations as we are expecting growing contribution from the ePension division. An interim DPS of 1.30Scts was proposed, vs 1.00Scts for 1Q23.

 

China and UK bank still loss making.  China continues to incur pretax loss of S$1.71m in 1Q24 (vs S$1.75m in 1Q23) while its UK banking operation&rsquo s pretax loss widened to S$2.28m as compared to S$1.71m in 1Q23.

 

Further improvement in net margins, moving towards obtaining operational leverage.  Net margin for the group improved to 18.4% in 1Q24 from 17.0% in 4Q23 and 11.0% in FY23, as the group moves towards obtaining operational leverage with higher revenue.

 

Increasing recurring revenue boosted by higher AUA and contribution from ePension division.  Recurring net revenue in 1Q24 increased to 84.2%, from 81.6% in FY23. The y-o-y increase in recurring net revenue in 1Q24 was boosted by higher recurring fee income from an increase in AUA, including fee income from portfolio service management services and higher interest commission income from clients&rsquo AUA and cash management solution services provided to clients due to the high interest rate environment during the period. In addition, the group&rsquo s ePension division also contributed significantly to the total recurring net revenue in 1Q24.

 

1Q24 geographical net revenue breakdown

Net revenue (S$m)	1Q24	y-o-y (%)
Singapore	22.3	+22.4
Hong Kong	27.7	+351.9
Malaysia	3.6	+10.3
China	0.3	-39.1
UK	4.2	+43.8
Total	58.1	+87.4

  Source: DBS Bank, company

 

Record high AUA of S$21.05bn, +16.0% y-o-y, outperformed the 4.3% gain for the broader market.  At the end of 1Q24, AUA for the group increased to a record high of S$21.05 bn (+16.0% y-o-y, +6.2% q-o-q), driven by net inflows of S$0.69bn during the quarter, which doubled vs 1Q23. In contrast, the MSCI AC Asia ex Japan index increased 4.3% y-o-y as at end March 2024.

 

Hong Kong registered the strongest growth in net revenue ePension business progressing well.  Net revenue for the Hong Kong operation increased by 351.9% y-o-y to S$27.7m in 1Q24. The Hong Kong operation&rsquo s AUA increased 4.6% q-o-q and 1.1% y-o-y to S$2.46bn as at 31 March 2024. The ePension division was the main revenue driver. As the onboarding schedule for selected trustees has been finalised, the ePension division is now in the final preparation stages to ensure smooth onboarding and operations.

 

AUA breakdown

AUA	1Q23	2Q23	3Q23	4Q23	1Q24
By market
Singapore	72.8%	73.3%	72.8%	72.9%	72.5%
Hong Kong	13.4%	13.1%	12.3%	11.8%	11.7%
Malaysia	11.3%	11.0%	11.9%	11.7%	11.6%
Others	2.5%	2.6%	3.0%	3.6%	4.2%
By product
Unit Trusts	66.8%	65.9%	63.5%	63.0%	62.3%
Stocks & ETFs	20.6%	20.8%	21.4%	20.0%	19.8%
Bonds	7.2%	7.9%	9.9%	11.0%	11.6%
Cash Account	5.4%	5.4%	5.2%	6.0%	6.3%

Source: DBS Bank Company

 

Upgrade to BUY with higher TP of S$9.57.The outlook for the group is improving as the key growth driver for 2024 and 2025 - the ePension division - is progressing well. The group is on track for stronger growth ahead. Furthermore, the core wealth management platform is also seeing healthy progress while net margin continues to improve. Hence, we upgrade the stock to BUY from Hold. Our target price based on DCF valuation method is raised to S$9.57 (previously S$8.33) on lower WACC of 8.8% from 9.3% as we adjust the capital structure with higher level of debt,  which is lower than the cost of equity.   The group&rsquo s return on equity ratio (ROE) has also improved to 21.9% in 1Q24, vs 12.2% in FY23, and is closer to its peak of 25.8% in FY21. There is no change in our earnings forecasts and projection of 15% y-o-y growth in AUA for FY24F and FY25F. Upgrade to BUY.

Between Mar 8 and 11, iFAST Corp non-executive non-independent director Lim Wee Kian acquired 25,000 shares at an average price of S$6.89 per share. With a consideration of S$172,250, this increased Lim&rsquo s total interest in the wealth management fintech platform from 6.61 to 6.62 per cent. His preceding acquisition on the open market was back in October 2022 with 57,000 shares acquired at an average price of S$3.79 per share. Lim is head of foreign exchange, treasury and markets at DBS Bank and has been with the bank since August 2004. Prior to joining DBS Bank, he was with various investment banks and was a member of the teams engaged in the trading of foreign exchange and interest rate products.

 

On Feb 21, iFAST Corp reported the group&rsquo s assets under administration grew 13.8 per cent year on year to reach an end-of-quarter record high of S$19.83 billion as at Dec 31, 2023. This was driven by net inflows of S$2 billion during the year. The group&rsquo s FY23 (ended Dec 31) net profit also increased by 340 per cent from FY22 to S$28.3 million, on the back of a 23 per cent increase in total revenue to S$256.5 million. The group noted that the increase in profitability was driven by initial contributions from the ePension division, as well as improvements in its core wealth management platform business.