iFAST’s Asset under Administration (“AUA”) grew faster than expected to hit S$6.46bn. Total AUA grew 17.2% year-on-year (“y-o-y”) and 8.2% quarter-on-quarter (“q-o-q”). We see most of the growth coming through in the 1Q17 contributed by Singapore’s AUA growth of 5.0% q-o-q. We see the growth boosted by improved market sentiment that drove the momentum for sales of investment products. And we also see the momentum in iFAST’s B2C channel sales picking up quickly following the launch of the FSMOne on its Singapore B2C operations in Dec 2016.
Trading in SGX-listed stocks and ETFs on target to launch in 2Q17. iFAST has cleared some key system tests in the process of applying for Trading and Clearing Member to SGX, and is awaiting formal clearance from authorities.
Hong Kong’s AUA grew 17.3% y-o-y and 6.6% q-o-q to hit S$1.40bn. Improved market sentiment and improved ranged and depth of products and services contributed the growth in AUA both in its Hong Kong B2C and B2B sales channels. The AUA growth catalyst for the B2B market came from the launch of stocks/ETFs in the B2B platform in 2016. Moving forward in 2017, we see catalysts for B2C AUA growth coming from the launch of stocks/ETFs on its B2C platform in April 2017. And following the success of FSMOne platform in Singapore, we could see could even more AUA growth once FSMOne platform is remodelled into the Hong Kong B2C platform.
Malaysia’s AUA grew 33.5% y-o-y and 12.6% q-o-q to hit S$413.31mn. Malaysian operations also obtained approval in April 2017 to operate fund management business. With the approval, the Malaysian operation intends to offer robo-advisory portfolios by middle of 2017.
Net profit growth was also driven by normalizing of staff costs. 1Q17’s staff costs margin was 43.3% of net revenue, a sharp drop from FY16’s average of 47.4%. We see the higher staff costs margin in 2016 a result of a difficult operating environment as more staff were hired to grow business while the soft markets led to a weak AUA growth and lower net revenues. So the lower staff costs margin in 1Q17 can be seen as a return to a level closer to FY15’s. We estimate FY17e average margin to be c.44% but still higher than FY15’s average staff costs margin of 41.5% as iFAST’s AUA is seen growing at a faster pace in 2017 than 2015 on the back of a strong FSMOne performance.
Upgrade to “ACCUMULATE” from previous “NEUTRAL” rating with an unchanged target price of S$0.78. We have increased our FY17e AUA estimate from S$6.3bn to S$6.9bn. Correspondingly, we have also increased our staff costs margin from previous estimate of c.42% to c.43% in response to stronger AUA growth. The overall effect to FY17e net profit estimate remains unchanged from our previous estimate. iFAST’s 25x PER is below 1 standard deviation of its 1 year historical PER therefore we use 25x PER as a conservative guide for its forward earnings.