IFAST just released its 2020 full year results last Friday. A fantastic results for the year but with the share price more than doubled from its closing price of $3.00 on 31 Dec 2020, is it time to take profit?

Given that I am pretty diversified in my new portfolio, my immediate answer is no. However, as it is now occupying 11.6% of my portfolio (other counters on average position is about 3.4%), I decided that it deserves a bit more scrutinising. So over the weekend, I glanced through the past 5 years of annual reports and crunched some numbers such that I can make an informed decision.

The Enablers

I like to look at the milestones diagram to see how the company has progressed over the years. And I would agree to what is shared in the presentation slides about what is achieved this year is due to the cumulative effort over the the past 5 years. And I expect further growth coming from the upcoming launch of its stockbroking services in Malaysia, traction of its China business and its involvement of the eMPF platform with PCCW in Hong Kong.

The Annual Numbers

The table below shows the numbers from 2015, the first full financial year since its listing.

The clearest trend is that its AUA has been increasing since 2015. And while revenue has also been increasing since 2016, the rate of increase is not quite correlated. Net profit is more lumpy, with drop in profit in 2016 and 2019. 2016’s numbers could be attributed to the launch of its China business. As for 2019, it was affected in the first half of the year due to the sell down in 2018’s fourth quarter.

So do not expect a linear increase in its profit annually and its business will be affected by overall market sentiment. However, on a longer timeframe of 3-5 years and beyond, there is a good chance that the company will grow.

Growth rate and Valuation

The table summarizes the growth rate of various parameters and segments over a period of 1-year, 3-year and 5-year. Last year was an exceptional year but the question is “will that sustain”? During the virtual AGM last year, I remembered asking whether the jump its 2020 Q1 results was a one-off event due to the circuit breaker. Then, Lim Chung Chun replied that they do not see it as one-off and indeed, IFAST continues to report good results for the remaining 3 quarters.

I am hesitant to say that it will repeat its 2020 results for the coming year. I also do not think that it will revert to it’s 5-year average growth rate of just 12%. That lower growth rate registered for the 5-year period is probably due to the capital injection to start its China business and other initiatives after its IPO.

Looking at the quarterly results over the past 3 years and the guidance of further growth in its latest report, I am quietly confident that it will be earning at least 30 mil next year. That translates to a growth of 42%, which is similar to the annualized growth rate over the past 3 years. And with the few enablers mentioned earlier, I do think that it can continue to grow at least at this rate for the next 3 to 5 years.

At the last price of $6.50, IFAST has a whooping PE of 87! Uncommon in Singapore market but not that rare for US growth counters. In fact, it is more than double its past 5 years average of 33! However, the PEG ratio shows that it is undervalue due to its exceptional growth this year. So if it doubles its net profit again next year, its PE at current price would drop back to around 40 which sounds a lot more reasonable. The question again is “will that happen”? Assuming that I am right that it can grow at 40% for the next 3 to 5 years, then PEG is around 2.2. Overvalue but not too drastic.

So what har?

Be mentally prepared for volatile price movement in the short term. If IFAST continues to report good results within or beyond expectation, the price will hold or continue to rise. In fact, I am expecting another 3-digit growth in its net profit for the coming 2021 Q1 and at least 60% growth for its Q2.

However if it reports results below expectation, then expect a big tumble in its share price. How low can it get really depends on how not good the results is as compared to expectation. A rough calculation of a 40% growth for the coming year and a PE of 40, its price would be around $4.20. So a near 35% drop from the current price of $6.50.

For the moment, I will not be taking any profit as the growth potential for the next few years do look good. Also, even if its share price plunged in the short term for whatever reason, my portfolio would not be overtly affected. A 50% drop in its price would only cause my portfolio to drop by about 5%-6%. Ouch but not fatal.

Having said that, if the price continues to rise without further new development, I might start to trim my holding once it starts to occupy 15% to 20% of my portfolio.