AEON Credit (AC) reported a much-improved 3QFY19, with an ordinary shareholders’ profit-after-tax (PAT) of RM83.5m (+24.8% yoy; +7.8% qoq), as operating profit saw a 20% yoy and 8.4% qoq growth. The results were within Affin and consensus estimates. Key drivers are its strong receivable growth, fee income expansion and lower credit costs. We tweak our FY19E-21E earnings forecasts by 7-10%, as we revise our assumptions for AC’s receivables growth from 13- 14% p.a. to circa 17% p.a. as a result of AC’s further expansion into the M40 target market (largely via personal and super bikes financing). Reaffirm our BUY call, with TP revised to RM20.10 (at 13x P/E target on CY19E EPS) from RM18.40.

9MFY19 Results Within Expectations, PAT Up 24% Yoy

AC saw its 9MFY19 PAT (ordinary shareholders) up 23.9% yoy to RM256.6m, underpinned by interest income (+6.9% yoy) and fee income (+22.1% yoy). Overall, the 9MFY19 net provisions (i.e. including credit recoveries) continued to decline by 33.5% yoy and was reflected in an improved net credit cost of 202bps against 342bps in 9MFY18. The company’s overall expenses declined by 8.5% qoq, as receivables provisions normalized qoq after seasonal effects seen in 2QFY19.

Robust Receivables Growth With Expansion Into the M40 Market

Given management’s strategic move to tap further on the M40 market segment (middle 40% household income category of between RM3,860- 8,319), AC has continued to see more robust receivables growth (+16.4% yoy and 6.6% qoq in 3QFY19). This was also partially driven by the GSTfree period, which had encouraged consumer spending (personal financing +23.7% yoy; auto-financing +13.7% yoy; motor-financing +32.6% yoy).

Reaffirm BUY Call; TP Raised to RM20.10 (from RM18.40)

We reaffirm our BUY call and revise our 12-month target price from RM18.40 to RM20.10 (based on an unchanged P/E target of 13x on CY19E EPS) as we revise up our FY19-21E earnings forecasts by 7.2- 9.8% as we factor in stronger receivables growth of 17% p.a. from 13-14% p.a.. AC looks on track to deliver a solid performance over FY19-21E, supported by positive outcome of its value-chain transformation project and benefitting from government’s reformative actions. We revise our. Downside risks: weaker consumer sentiment and credit quality.

Source: Affin Hwang Research - 21 Dec 2018