Affin Hwang Capital Research Highlights

Author: kltrader   |   Latest post: Wed, 21 Oct 2020, 4:34 PM


AEON Credit - Impairment Rises as MCO Hinders Collections

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Aeon Credit’s (AC) 1QFY21 results came in below our and consensus estimates, largely due to a significant rise in provisions for delinquent accounts and write-offs (RM105m), which expectedly worsened during the Movement Control Order (MCO) period. Hence, 1QFY21’s net credit cost spiked to 612bps vis-à-vis 299bps (1QFY20) and 341bps (4QFY20). As expected, revenue growth was minimal in 1QFY21, as receivables growth tapered off sharply while fee income declined. Our FY21 earnings forecasts are currently under review. Maintain BUY with a PT of RM12.30 (based on a 13x P/E multiple on CY21E EPS).

1QFY21 Net Profit -68.5% Yoy and -67% Qoq; Below Expectations

AC’s 1QFY21 PAT (to ordinary shareholders) of RM26.3m declined by 68.5% yoy and 67.2% qoq, attributable to a 87% yoy and 98.7% qoq increase in impairment loss on receivables. As a result of the restrictions following the MCO (mid-March to end-April), we saw a spike in delinquent account movements (between D1 to D6 status), which triggered the requirement for provisions to be set aside (RM73m) while receivables written-off amounted to RM105.2m (+4.7% qoq; +18.4% yoy). The annualized net credit cost was 612bps in 1QFY21 vs. 341bps (4QFY20) and 299bps (1QFY20). Nonetheless, in our view, provisions set aside in 1QFY21 could potentially be reversed as arrears are gradually settled.

Asset Quality the Key Focus, as Receivables Growth Stays Subdued

In line with a subdued economic outlook in 2020, AC’s key receivables moderated to +1.2% qoq (driven by motorcycles, auto and objectivefinancing). Meanwhile, asset quality will be the key focus in FY21, as the risk of further deterioration in the unemployment rate from 5% in April 2020 to potentially 8% by end-2020, could drive up provisions. As at 1QFY21, AC’s gross NPL ratio saw an improvement to 1.42% vs. 1.92% (4QFY20), as outstanding NPLs remain relatively unchanged qoq.

Reiterate BUY, Price Target at RM12.30

Reiterate BUY on AC, with our PT unchanged at RM12.30 (based on a P/E target of 13x on CY21E EPS of 94.6 sen). We look forward to a recovery year in FY22, underpinned by recovery in receivables growth of 9% yoy (vs. -4% yoy in FY21E) and a lower net credit cost of 334bps (vs. 353bps in FY21E, under review). Downside risks: weaker asset quality and receivables growth.

Source: Affin Hwang Research - 26 Jun 2020

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