IFast posts second strong quarter; gets earnings upgrades

The growth upswing of iFast Corporation appears to have gained traction. This time last year, the wealth management platform operator posted earnings of $2.98 million for 1QFY2023 ended March 31, 2023, down 48.1% y-o-y. A year on, iFast has bounced back to 1QFY2022 levels — and higher.

On April 25, the mainboard-listed company posted earnings of $14.5 million for 1QFY2024, nearly five times higher y-o-y. Total revenue rose 59.4% y-o-y to $86.0 million, driven by contributions from the group’s ePension division in Hong Kong, as well as improvements in the group’s core wealth management platform business.

iFast has proposed a higher interim dividend of 1.3 cents per share, up from 1.0 cents this time last year, representing a 27% payout ratio.

The 1QFY2024 results follow iFast’s blowout 4QFY2023, where net profit surged more than eightfold. iFast’s FY2023 net profit more than doubled y-o-y to $28.27 million.

Analysts from DBS Group Research and CGS International were quick to upgrade the stock. DBS analyst Ling Lee Keng upgraded iFast to “buy” from “hold”, with a higher target price of $9.57 from $8.33. In an April 26 note, Ling says she is “turning more positive” as iFast’s key growth driver, the ePension business, reported “strong progress”.

Net revenue for iFast’s Hong Kong operations increased by 351.9% y-o-y to $27.69 million in 1QFY2024. According to iFast, the ePension division was the “primary revenue driver” for Hong Kong business in 1Q2024.

CGSI analyst Andrea Choong notes that ePension contributions have been consistent for 2QFY2024. In an April 29 note, Choong upgraded iFast to “add” from “hold”, with an unchanged target price of $9.10.

“After recording seven months of consistent ePension contributions, we believe that iFast is on course towards its HK$250 million ($43.65 million) pre-tax profit guidance for its Hong Kong business in FY2024,” says Choong.

iFast unveiled updated targets for its Hong Kong business in February, including HK$500 million in profit before tax in FY2025.

The Legislative Council Panel on Financial Affairs of Hong Kong (Legco) is planning to onboard the 12 Mandatory Provident Fund (MPF) trustees onto the ePension platform in ascending order of assets under management (AUM).

Over at the UK, iFast Global Bank is reportedly gaining traction in customer deposits, notes Choong. iFast has made an additional capital injection of GBP10 million ($17.04 million) in iFast Global Bank, the UK-based digital bank it acquired in April 2022. Consequently, its effective interest in the bank has increased to 91.3% from 89.5%.

The bank’s take-up rate has been encouraging, says Choong, with customer deposits rising to GBP303 million in 1QFY2024, up 47% q-o-q.

iFast expects the bank to break even by 4QFY2024. Its banking division recorded $2.3 million in pre-tax losses in 1QFY2024.

UOB Kay Hian Research analysts Heidi Mo and John Cheong, in their April 29 report, are more subdued. While they are maintaining their “hold” on iFast, they have cut their target price by 10% to $7.64.

According to Mo and Cheong, iFast’s ePension division will be a “key earnings growth driver” for 2024 and 2025. However, they expect PBT to moderate over the coming quarters “as headcount ramps up in line with the onboarding schedule”.

In June 2023, iFast’s Hong Kong subsidiary launched a one-stop digital pension solution for Hong Kong Occupational Retirement Schemes Ordinance (ORSO) pension schemes. As at the end of 2023, assets under ORSO schemes stood at HK$290 billion. Besides AUA (assets under administration), revenue will depend on the number of trustees or partners secured. iFast has secured one partner with HK$10 billion in asset size and continues to be in talks with potential partners, note the UOBKH analysts.

Citi Research, a longtime bear of the stock, ended its coverage of iFast in January. Citi’s last report, from October 2023, carried the house’s “sell” call and $3.70 target price, reiterating that the group’s underlying core business remains soft.

UBS Global Research, which turned positive on the counter ahead of its peers, has maintained a positive view of iFast. Last November, when the Hong Kong contributions were not yet that apparent, analysts Aakash Rawat and Benjamin Tan urged investors to “buy” as they hiked their price target from $6.50 to $10.

That call probably helped send iFast’s shares up from just over $6 to more than $8 in over a month. The analysts further hiked their target price in February to $10.50, and they have maintained their call and target price in their latest note dated April 26.

Hong Kong is seen to further contribute to the company’s growth trajectory. Annualised, PBT from iFast’s ePension division would reach $45 million, above iFast’s HK$250 million target.

AUA growth in iFast’s core wealth management business accelerated to 6% q-o-q in 1QFY2024 from 4% q-o-q in 4QFY2023. This is the fastest sequential pace since 2QFY2021, driven equally by net inflows and market valuations.

“We raise our FY2024-FY2025 EPS slightly by 0%-4% as we conservatively continue to forecast ePension contribution according to the guidance despite the much stronger performance in 1QFY2024,” note the UBS analysts.