Digital Banking And ePension Initiatives Will Drive Future Market Expansion

Key Takeaways

• Effective cost management and digital banking growth continue to drive iFAST Global Bank's profitability and boost future earnings.
  
• Expansion in ePension and tech solution initiatives could enhance revenue streams and market expansion opportunities.
  
• iFAST's growth may be impacted by reliance on interest income, project delays, rising expenses, and shifts in client investment preferences.

Catalysts

Provides investment products and services in Singapore, Hong Kong, Malaysia, China, the United Kingdom.

• iFAST Global Bank’s move to profitability in less than three years after acquisition suggests effective cost management and growth in net interest income. This can boost future earnings and margins.
  
• The anticipated full-year profitability of iFAST Global Bank in 2025, supported by growth in digital banking initiatives, should significantly improve revenue and earnings.
  
• The continued growth in Assets Under Administration (AUA) for iFAST’s wealth management platform is expected to drive further increases in revenue and profitability.
  
• Expansion opportunities in the ePension space, including potential contributions from the ORSO and Macau projects, are poised to offer additional revenue streams in the near future.
  
• Strategic focus on developing new tech solutions and potentially expanding banking licenses in Europe could drive sustained earnings growth and market reach.

iFAST Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming iFAST's revenue will grow by 19.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 17.4% today to 20.7% in 3 years time.
• Analysts expect earnings to reach SGD 133.8 million (and earnings per share of SGD 0.47) by about March 2028, up from SGD 66.6 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 23.3x on those 2028 earnings, down from 32.8x today. This future PE is greater than the current PE for the SG Capital Markets industry at 14.2x.
• Analysts expect the number of shares outstanding to grow by 0.13% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.75%, as per the Simply Wall St company report.

iFAST Future Earnings Per Share Growth

Risks

• The reliance on net interest income as the primary driver for iFAST Global Bank's growth suggests sensitivity to interest rate fluctuations, which could adversely impact revenues if interest rates fall.
  
• Potential delays in the contribution from the ORSO project and uncertainty surrounding new projects like the Macau pension initiative may lead to lower-than-expected growth in revenues and profits for the ePension division.
  
• The banking operations, though now profitable, are at an early stage, and require aggressive cost management to sustain profitability, introducing risks that could affect net margins if costs become unmanageable.
  
• Pressure on trailer fees and potential shifts in client preferences from Unit Trusts to ETFs could lead to reduced revenue from advisory and platform services.
  
• Operational expenses are expected to increase as the company ramps up resources for its ePension business and other new initiatives, which could compress profit margins if not matched by corresponding revenue growth.

Valuation

• The analysts have a consensus price target of SGD8.576 for iFAST based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of SGD10.88, and the most bearish reporting a price target of just SGD3.7.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SGD647.7 million, earnings will come to SGD133.8 million, and it would be trading on a PE ratio of 23.3x, assuming you use a discount rate of 6.8%.
• Given the current share price of SGD7.32, the analyst price target of SGD8.58 is 14.6% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.