We are raising our Price Target for Aeon Credit (AC) from RM14.25 (based on 9x P/E on CY18E EPS) to RM15.30 (based on 13x P/E on CY18E EPS). The upgrade in our PT on AC is due to the positive results of the ‘value chain transformation project’, which, in our view, may potentially re-rate its share price. Nonetheless, there are revisions of 11.4-13.8% to our FY18-20E EPS due to additional shares from the conversion of ICULS. Maintain BUY, noting that AC is a high-growth, high-return financial stock, with an ROE in the high teens. Despite news of AC being slapped with a RM96.8m additional tax bill, management is of the view that the company has strong legal grounds to defend its position, and hence no provision is expected.

Value Chain Transformation Project Proving Successful

AC embarked on the Value Chain Transformation project in FY17, which included an e-biz portal for web application submission for credit cards and easy payment schemes. It has also completed its cashless and paperless operations at 64 branches nationwide and stepped up digital applications, resulting in significantly improved staff productivity and turnaround time.

2018 Catalysts – Game Changers for Aeon Credit

1) AC’s recent initiatives to enhance the customer experience includes the promotion of the use of e-wallet and e-money cards, mobile wallet and the introduction of the Platinum credit card;

2) We believe that AC will be a key beneficiary of Budget 2018’s 2% income tax reduction (for individuals earning RM20-70k pa) as its ‘Aeon Credit’ brand is a household name in the provision of easy-payment schemes, motorcycle financing, and used-car financing, which may see greater demand in 2018 arising from higher disposable income;

3) Acquisition of new merchants remains an on-going process. Its recent tie-up with Lazada has enhanced the appeal of AC with millennials.

Maintain BUY; PT Upgraded Further to RM15.30 From RM14.25

We note that AC’s share price may potentially re-rate due to the ongoing digital transformation and marketing initiatives, hence we raise our PT from RM14.25 (based on 9x P/E on CY18E EPS) to RM15.30 (based on a higher P/E target of 13x on CY18E EPS). Maintain BUY. Downside risks: rise in defaults; subdued growth.

Source: Affin Hwang Research - 15 Dec 2017