AEON Credit - Higher Expenses Weighed Down 1QFY20

Date: 28/06/2019

Source  :  AffinHwang
Stock  :  AEONCR       Price Target  :  19.80      |      Price Call  :  BUY
        Last Price  :  13.06      |      Upside/Downside  :  +6.74 (51.61%)

AEON Credit’s (AC) 1QFY20 ordinary shareholders profit-after-tax (PAT) of RM84.6m (-12.7% yoy) came in below Affin’s and consensus estimates. This was largely due to higher than expected provisions and funding costs. On a more positive note, AC saw gross receivables growth at 21.8% yoy, driven by robust expansion in segments such as motorcycles (+48% yoy), automobile (+16% yoy) and personal financing (+32% yoy). We remain upbeat on AC driven by expansion into the M40 market and improved customer experience (through a B2C2B model). Reaffirm our BUY call, with TP revised to at RM19.80 (at 13x P/E target on CY20E EPS) from RM20.40.

1QFY20 Results Below Expectations as PAT Fell 12.7% Yoy, Flat Qoq

AC’s 1QFY20 PAT (ordinary shareholders) was down 12.7% yoy to RM84.6m arising from higher provisions (+63.4% yoy), staff costs (+13.4% yoy), advertising & promotion (A&P) (+114.3%). Meanwhile, 1QFY20 net credit cost rose to 299bps vs. 170bps in 1QFY19 and 216bps in 4QFY19. In spite of that, interest income generated (+14.6% yoy, +4.9% qoq) from its receivables remained in-line with our expectation. No doubt, although receivables growth remains robust (up +21.8% yoy and +4.6% qoq), the average yield has declined over the quarters to an average of 14.7% in 1QFY20 vs. 15.5% in 1QFY19. All in, our FY20E/21E/22E EPS have been revised down by 8.9%/7.3%/7.4% to account for higher provisions and funding costs.

Transformation Initiatives Continue to Yield Positive Results

Management’s transformation initiatives, which include a digital transformation and shift in business focus (to tap further on the M40 market segment, increase fee income growth and implementation of a B2C2B feature) have yielded positive results.

Reaffirm BUY Call; Price Target Lowered to RM19.80

We reaffirm our BUY call but lower our Price Target to RM19.80 (from RM20.40; methodology unchanged – based on a P/E target of 13x on a revised CY20E EPS of 152.2 sen). Despite the revision in earnings, AC looks on track to deliver a solid performance over FY20-22E, supported by positive outcome of its value-chain transformation project. Downside risks: weaker consumer sentiment and credit quality.

Source: Affin Hwang Research - 28 Jun 2019

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