• Though Aeon Credit (AC) is expected to see a weaker year in FY21, as a result of the higher provisions in 1QFY21 and weaker receivables growth in 1HFY21, our recent discussion with management indicated a potentially more positive outlook 2HFY21.
• The implementation of the CMCO commencing 14 Oct–27 Oct is not expected to have a detrimental impact on AC in our view, unless the situation worsens and results in the need of an MCO. At this juncture, we believe that it would still be more or less business-as-usual (BAU) for AC.
• Maintain BUY with a higher PT of RM13.00 (based on a 13x P/E multiple on CY21E EPS of 100 sen). We foresee some near-term catalysts coming from growth in motorcycles, used-cars and personal financing.

COVID-19 pandemic drives need for motorcycles, cars and personal financing

The COVID-19 pandemic has not only caused slower economic activities and business disruption, but has altered the way businesses are conducted and lifestyle as well. Hence, it was not a surprise to see AC having a boost in motorcycles receivables growth, at 7.7% ytd as at 2QFY21, while other segments remained weak. Meanwhile, as management turns less cautious on approvals, we expect the used-car and personal financing (PF) growth to pick up as well in 2HFY21, after a period of subdued growth in 1HFY21.

With expectations of stronger receivables growth in 2HFY21, NCC may increase

Though implementation of the CMCO may potentially shave off 0.5ppts on GDP growth (according to our economist), we are of the view that Aeon Credit may not be negatively affected but may potentially benefit from niche opportunities amidst a more cautious market. On the other hand, as we turn more positive on AC’s receivables growth in 2HFY21, its net credit cost and interest expense will increase in tandem, resulting in an enhancement of 5.9% to FY21E’s bottom line. Our revised assumptions for AC (FY21E/22E/23E) are as follows: i) receivables growth at +5.7%/+7.9%/+7.5%; and ii) net credit cost at 456/362/356bps. These were revised from -4%/+9%/+9.5% for receivables growth and 412/304/299bps in net credit cost.

Maintain BUY, With a Higher 12-month Price Target of RM13.00

We reiterate our BUY rating with our PT raised to RM13.00 (based on a P/E target of 13x on CY21E EPS of 100 sen). We also raise our EPS estimates by 3-6%. Though we look forward to a recovery year in FY22, our call is premised on a cautious economic recovery and barring any potential MCO, which would require the closure of nonessential services coupled with restrictions in movement. Downside risks: weaker asset quality, contraction in receivables growth, implementation of the MCO, and spike in the unemployment rate.

Source: Affin Hwang Research - 14 Oct 2020