A strong rebound qoq

AEON Credit’s 9MFY17 PAT of RM185m (+15.5% yoy) was in-line with expectations. There were no major surprises, though the robust motorcycles receivables growth trend is moderating owing to a weak market. Nonetheless, other avenues of growth, i.e. from personal financing plugged-in the gap. Maintain HOLD, PT at RM14.70.

9MFY17 results in-line – PAT up 15.5% yoy

AEON Credit saw a 15.5% yoy growth in profit after tax at RM185m, with higher interest income, fee income and recoveries (9MFY17 credit cost at 373bps vs. 460bps 9MFY16) being key drivers while partially negated by higher operating expenses and finance cost. Results were within our expectations. Meanwhile, 3QFY17 earnings grew by 25.7% qoq on lower impaired loan allowances post-Raya season while finance costs and other overheads crept up around 3% qoq. The gross NPL ratio improved from 2.43% in 2QFY17 to 2.33% in 3QFY17. Receivables growth remained robust at 20.7% yoy and 14.8% ytd to 3QFY17 (used-car financing +20% ytd; personal loans +27.8% ytd and motorcycle-financing +9.8% ytd).

Banking on new avenues of growth

Despite a competitive market, we believe that management’s on-going initiatives such as: i) targeting the higher income segments (via personal loans financing); ii) penetrating into the SME/micro-financing markets; and iii) cross-selling with AEON BIG and new merchant tie-ups will gradually make up for the weaker receivables growth.

Maintain HOLD with an unchanged PT unchanged at RM14.70

We maintain our HOLD rating on AEONCS with a TP of RM14.70 (based on 8x PER for CY17 EPS of 184.3 sen). We foresee a slight moderation in receivables growth at 16-18% p.a. for FY18-19E (led by weakening in the once robust motorcycle segment) while the lucrative effective interest rate is expected to taper down to between 15.5-16.5% (FY18-19E) from 19- 20% back in FY13-14 owing to change in product focus to the lower risk segment. AEON Credit’s strict risk management standards will continue to preserve its asset quality apart from an improving collection system. Downside risks – rising household debt level, increase in defaults. Upside risks: rebound in consumer sentiment, higher wages growth

Source: Affin Hwang Research - 23 Dec 2016