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'Is it time to revisit iFast?' UBS nearly doubles its target price to $10 on Hong Kong growth

UBS has raised its target price from $6.50 to $10. iFast shares traded at an intra-day all-time high of $10.10 in September 2021.

Investors’ interest in iFast Corporation has declined over the last couple years, note UBS analysts Aakash Rawat and Benjamin Tan.

Their gripes for most of 2022 include a significant deceleration in assets under administration (AUA) growth, from 30%-45% y-o-y growth in 2020/2021 to shrinking 8% in 2022; a surprise acquisition of a loss-making UK bank in early-2022; concerns over potential delays in the launch of the Hong Kong mandatory ePension platform project; and a one-off impairment for the India business, which led to a net loss in 2QFY2022 ended June.

But are things finally turning for the better? Most of these concerns appear to be in the rear-view mirror with the outlook looking better from here, say the UBS analysts.

Firstly, the decline in AUA has reversed with AUA growing 2%-4% q-o-q over the last few quarters. Net inflows have also recovered, which suggests a recovery in the underlying business momentum, they add.

Secondly, losses in the banking business have started to narrow with guidance for breakeven in 2H2024. The group also looks to be making good progress in line with their strategic plans with the launch of the corporate and consumer banking services this year, say Rawat and Tan.

Lastly, iFast reported an earlier and higher-than-expected contribution from the ePension division in 3Q2023, a quarter earlier than guided, which should help to ease concerns around eMPF launch delays, add the analysts.

Hence, UBS has upgraded its target price by nearly 50% to $10 from $6.50 previously, while maintaining “buy” on iFast.

In a Nov 27 note titled “Is it time to revisit iFast?”, Rawat and Tan think investors are likely to start pricing in the expected acceleration in earnings per share (EPS) growth, given the earlier-than-expected contribution from the ePension division in Hong Kong.

“We believe this could continue to be a catalyst for the re-rating of the stock,” say the UBS analysts. “We expect upcoming positive catalyst at the 4QFY2023 results in February 2024, where management is expected to provide updated guidance to the Hong Kong business and we believe are likely to raise it.”

They also expect a stabilisation in interest rates to drive higher AUA growth for iFast. “Lower rates next year are likely to help with valuations re-rating. Over the medium term, we remain positive on the structural growth prospects and potential cross-divisional synergies between banking and the core wealth management business.”

For the core wealth management business, the UBS analysts forecast 11% y-o-y AUA growth in 2024 and stable net revenue/AUA margins of 65 basis points (bps).

For iFast’s UK-based banking business, they forecast 20% y-o-y net revenue growth and a decline in cost-to-income ratio (CIR) to 65%, down from 107% in 2023, driving a narrowing of losses.

For the ePension division, UBS forecast a $32.5 million profit before tax (PBT) contribution, “which is estimated based on the guidance shared for the Hong Kong business”.

iFast shares started the year at $5.81, before news of its Hong Kong project delays weighed the stock to lows of around $4.16 in May. Since the release of iFast’s 3QFY2023 results, shares of the Mainboard-listed company have recovered beyond the 52-week highs seen in December 2022, but are still changing hands below the intra-day all-time high of $10.10 seen in September 2021.

As at 3.48pm, shares in iFast are trading 18 cents higher, or 2.31% up, at $7.98.

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