Excerpts from KGI report

Analyst: Joel Ng

• IFS Capital Limited (IFS) provides commercial finance services such as factoring, hire-purchase/leasing, loans, government-assisted schemes and trade/export finance to SMEs. The group also provides bonds, guarantees and general insurance through its subsidiary ECICS Limited.


Share price: 
19 c

29 c

Hit on financials due to Covid-19. Profits were growing steadily from 2016 to 2019, with an average growth rate of 13.4% per annum. However, things took a turn in 2020 when Covid-19 hit, with PATMI decreasing by 88% YoY to only S$0.8mn (from S$6.5mn core PATMI in 2019), respectively.

• 2021, a better year ahead. We expect to see a rebound in 2021 and full recovery by 2022 as global economic growth picks up momentum.

Maintain OUTPERFORM. Our fair value of S$0.29 is based on 0.6x 2021F BVPS.

SME lending business is still key revenue driver. The bulk of business generated in 2020 was contributed by the credit financing segment, which made up 82.7% of total net operating income, an increase from 74.9% in 2019.

RandySim 421a 01Randy Sim, Group CEO, IFS CapitalHowever, PBT generated from the credit financing segment was slightly offset by losses incurred from the insurance segment, resulting in a lower PBT recorded for the year. On the road to recovery.

We expect financing to recover steadily in 2021 amid the backdrop of an improving economy.

However, while Singapore has done relatively well due to broad government support, other countries such as Thailand may still lag. On an overall basis, we see revenue being more resilient than initially expected when the pandemic first hit.

Insurance segment gaining momentum. While IFS’s insurance arm has been loss making, it was on the positive trend of reducing the losses from 2018 to 2019. However, there were two significant performance bonds that were called in 2020, both related to the construction industry, which amounted to around S$4.5mn.

Excluding these two performance bonds, losses at its insurance segment would have reduced YoY to around S$2.2mn compared to losses of around S$4.9mn in 2019 and S$5.5mn in 2018.

Investment income. There was an 85% dip in investment income from S$4.9mn in 2019 to S$709k in 2020, due to lower returns from equity investments in 2020 as a result of the volatility in the financial markets. Amid accommodative monetary and fiscal policies, we expect financial markets to remain buoyant and therefore offer better returns in 2021.

Going digital. The group currently has three digital offerings to serve consumers and SMEs.

On the consumer side, it has Friday Finance (www.fridayfinance.sg) which focuses on financial wellness at an affordable and transparent pricing.

Its loan marketplace Lendingpot (www.lendingpot.com) connects SMEs with relationship managers from up to 45 financial institutions in Singapore to find the best business loan. They have introduced new tools including property robo-valuation and loan-matching services.

Valuation & Action: We maintain our OUTPERFORM recommendation on IFS, driven by the recovery of its lending business.

JoelNg919Joel Ng, analystWe assign a target price of $0.29 to IFS, based on 0.6x FY20F BVPS.

Risks: Increase in net claims from its insurance business and an economic slowdown are key risks.

Meanwhile, a faster than-expected rise in interest rates would impact IFS’s cost of borrowings and net interest margins.

Full report here. 

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