CGS-CIMB has downgraded its call on iFast : AIY 0%to “reduce” from “hold” and lowered its target price to S$3.50 from S$3.80, to factor in lower core earnings projections as well as headwinds for the company’s eMPF project in Hong Kong.  

On account of these factors, the research house’s earnings per share (EPS) projections for FY2023 and FY2024 were reduced by 22 per cent to 28 per cent. 

CGS-CIMB’s downgrade comes after the wealth management platform posted an 82 per cent fall in net profit for its fourth quarter ended Dec 31, 2022. 

In a Thursday (Feb 16) note, analyst Andrea Choong noted that the company’s net profit fell below consensus estimates, with the miss attributed to higher-than-expected operating expenses and weaker net financing income. 

She also expects the tight labour market in Hong Kong to further delay significant contributions from the company’s eMPF project to FY2024, instead of iFast’s projected timeline of the fourth quarter of FY2023.

In view of the milestone-based service fees for earnings contributions from the project as well as a lack of visibility, CGS-CIMB has factored in a 40-50 per cent discount to these contributions. 

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The research house also cautioned that a component of the project’s fees are dependent on assets under administration (AUA), which is subject to market volatility. 

Higher dividends are expected to be likely only from FY2024, once iFast’s new initiatives “ramp up”, she said. The analyst also cautioned that despite new initiatives, the company’s digital bank could still incur start-up losses in FY2023 before breaking even in FY2024. 

While iFast’s platform business in Singapore is expected to remain its earnings anchor, Choong highlighted the possibility of continued losses in China in the near-term, as operating conditions remain challenging.

Nonetheless, she found it positive that the decline in the company’s overall Q4 AUA reversed, with an increase by 3 per cent from the previous quarter, although it still faced an 8.3 per cent decrease from the previous year. 

Despite persistent market volatility, net inflows were also still positive in the fourth quarter, she added, although it was also lower by 65 per cent from the previous year. 

Shares of iFast were trading at S$5.25, down 5.1 per cent or S$0.28 as at 12.18pm on Thursday.