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

“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,” writes Ho in a Feb 9 report.

“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,” he adds.

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

See: iFAST reports record quarterly earnings of $6.83 mil, AUA of $14.45 bil at all-time-high and iFAST aiming for Malaysia digital bank licence, $100 bil AUA goal 'not a big number': Lim

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

“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,” notes Ho.

On that, Ho expects iFAST’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’s expectations as dividend payout ratio was reduced to 42% in 2020 from 89% in 2019 to “support future expansion plans”, he says.

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

She has also raised iFAST’s FY2021 and FY2022 earnings estimates by 12% to 26% on expectations of revenue growth at “new normal levels”.

“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,” says Choong.

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

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

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

“As iFAST is a prime subcontractor in PCCW’s consortium, our blue-sky scenario analysis of iFAST’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.”

“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,” she says.

As at 3.57pm, shares in iFAST are trading 9 cents higher or 1.5% up at $6.29.

See: iFAST 'well-poised' to capture more market share in Singapore: DBS