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Citi reiterates 'sell' on iFAST as share price plummets to eight-month low

·4-min read

“We caution investors against accumulating the stock,” say Citi Research analysts, trimming TP from $7.50 to $6.20 per share.

Citi Research analysts Tan Yong Hong and Robert Kong continue their “sell” call on FinTech company iFAST despite the company’s share price falling below $7 for the first time since May 2021.

Shares in iFAST have plummeted from $7.36 a week ago to $6.39 as at 11.02am on Jan 27.

In a Jan 27 note, Tan and Kong reiterate their “sell” recommendation, which demurs from consensus calls. They have further trimmed their target price to $6.20 per share, down from $7.50 in a Jan 8 note.

“We caution investors against accumulating the stock. Our sell-thesis of market over-optimism on HK eMPF and rising real yields has played out,” write the Citi Research analysts.

They continue to flag additional concerns, including ongoing pressure on platform margins, near-term earnings uncertainty after consolidating the loss-making BFC Bank, dilutive M&A if funds are raised in the equity market and execution risks in BFC Bank.

On Jan 7, iFAST announced the proposed $45.9 million cash acquisition of an 85% stake in BFC Bank at 1.62 time price-to-book ratio (P/B), with 15% to be held by the incoming CEO.

BFC Bank is a fully licensed UK bank offering payment and remittance services, wholesale banknote services and deposits. It has been loss-making since operations began in 2017. BFC Bank exited the corporate banking business in 2020 citing adjustments in business strategy and risk appetite.

iFAST’s total investment amount of $73.4 million includes the $45.9 million acquisition amount and $27.5 million capital injection.

On Jan 11, iFAST announced that it raised $105 million via a placement of 14 million new ordinary shares to institutional and accredited investors. The placement was oversubscribed with over $150 million in total subscription, more than double the initial base deal size of $75 million.

“Factoring loss-making BFC Bank and including the private placement impacts our FY2022F/23F/24F EPS by -15%/-9%/-6% respectively. We also cut our payout ratio as management indicated that IT capex is required for BFC Bank. Consequently, we cut our FY2022F-23F dividend per share (DPS) by 14% (also impacted by higher shares from placement),” write Tan and Kong.

‘Huge expectations’ for 4Q21 results

iFAST will report 4QFY2021 results in February. The Citi Research analysts expect $31.4 million FY2021F PATMI, which implies 4QFY2021F PATMI of $8.0 million, up 5% q-o-q.

However, iFAST would go into 4QFY2021F with huge expectations, say Tan and Kong, as consensus is expecting $32.3 million FY2021F PATMI or 4QFY2021F $8.9 million (up 17% q-o-q).

“This was despite iFAST recognising Hong Kong project fees in 3QFY2021, [which] we estimate at $1.1 million. Management has guided there could be similar project related fees in subsequent periods but would be of lower magnitude,” they add.

Through tracking iFAST’s Singapore B2C mobile app FSMOne Mobile, Tan and Kong see continued pressure on platform margins. “Downloads decreased 4% q-o-q in 4QFY2021F. In 3QFY2021F, downloads declined 25% and group B2C net platform margins declined 4 bps to 0.68%.”

Competition could intensify in FY2022F with digital wealth manager Syfe and payment FinTech Revolut launching online brokerage services, they add.

See: Digital wealth manager Syfe launches brokerage platform Syfe Trade

See also: Syfe Trade secures 30,000 users ahead of official launch

Tan and Kong see some upside if iFAST wins further projects in Hong Kong and if it is awarded a Malaysia digital bank licence in 1Q2022, which could lift sentiment.

iFAST Corp leads a consortium comprising three Malaysian partners — Koperasi Angkatan Tentera Malaysia, the cooperative organisation for Malaysian military personnel; THZ Alliance, an investment firm founded by Tengku Dato’ Dr Hishammuddin Zaizi; and Lee Thiam Wah, founder and major shareholder of mini-mart chain 99 Speed Mart.

Lee subscribed a total of $51 million in the company’s shares in its most recent placement, making up nearly half of the full deal size.

The consortium also includes Yillion Fintech, an arm of Yillion Bank, founded by Zonfar Financial Holding and Hong Kong-listed Meituan Dianping. Yillion Bank is one of four digital banks in China.

If successful in its bid, iFAST Corp will own a 40% stake in the digital bank.

As at 11.14am, shares in iFAST are trading 44 cents lower, or 6.43% down, at $6.40.

Photo: Albert Chua / The Edge Singapore

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