+ AUA growth led by strong net sales. AUA grew by S$350mn to S$6.81bn in 2Q17. Net sales contributed S$250mn and AUA revaluation added S$100mn. Net Sales was boosted by B2C bond sales in Hong Kong and in Singapore and B2B ETF sales.
+ Higher staff costs were offset by lower costs of equity settled share based payment transactions. Higher staff costs and other operating expenses were higher due to China operations, but the higher staff costs were partially offset by vesting of some batches of share options and performances shares after 2Q16.
+ Launch of FSMOne in Dec 2016 helped boost non-recurring income. The introduction of multiple product offerings on the B2C platform in Dec 2016 followed by rising investor sentiments in early 2017 helped boost “one-off” front end charges for retail purchases of bonds, stocks and ETFs. As a result Non-recurring net revenue as a percentage of AUA increased to 0.117% during 1H17 compared with 0.105% in FY16.
+ Strong AUA growth in Hong Kong and Malaysia. Hong Kong AUA grew 27.2% YoY to hit S$1.51bn as sales in unit trusts and bonds both grew strongly. Malaysia’s AUA grew 46.6% YoY to hit S$465.75mn with the launch of bonds in April 2017 and robo-advisory portfolios in May 2017.
– Traction in China remains slow. Onshore Chinese business was affected by local regulatory changes at the beginning of 2017 while offshore Chinese market flows from Hong Kong and Singapore contributed to the Chinese net revenue. 1H17 Chinese net revenue remains small at S$150,000 (0.2 basis points of AUA).
Given that 74% of total AUA is in the B2B segment, we continue to see strong retention for the platform fees which is about 25% of iFAST’s total net revenue. Despite the launch of its stock broking business, we expect iFAST to remain focused on asset gathering and building AUA business, such as bonds, ETFs and unit trusts. We see iFAST’s stock broking capabilities as ancillary to providing a comprehensive suite of services to their B2B clients. It will also act as a key service for the B2C clients on the FSMOne platform to improve retention of platform paying customers.
We expect iFAST to perform well as investors are likely to favour the accumulation of financial assets over the trading of financial assets because of rising investment sentiments amid low volatility in the capital markets. Therefore we re-rate iFAST’s target Price-to-Earnings Ratio (“PE”) to 1-year average PE ratio of 34.3x (previous 25x PE ratio).
Valuation: 1-year average Price to Earnings Ratio of 34.3
Maintain “Accumulate” rating with higher target price of S$1.11 (previous TP S$0.78) pegged at 34.3x PE ratio (previous 25x PE ratio) based on FY17e EPS of 3.25 cents (previous FY17e forecast was 3.12 cents).