• Aeon Credit’s (AC) 9MFY21 results came in below our and consensus estimates, subsequent to a weaker 3QFY21 (-9.8% qoq; -39.7% yoy), whereby receivables interest income was lower than our expectation.
• Receivables growth remained subdued (-1.6% ytd; -0.4% qoq) as at 3QFY21, in-line with management’s stringent approvals throughout 9MFY21, though we expect more positive growth in 4QFY21. 9MFY21 saw an annualized net credit cost of 465bps vs. 9MFY20 at 391bps. Meanwhile, the gross NPL ratio rose to 2.88% in 3QFY21 from 1.95% in 2QFY21.
• Maintain BUY, PT remains unchanged at RM14.00, based on a 14x P/E multiple on the CY21E EPS. We will provide an update upon further guidance at an upcoming briefing.

3QFY21 net profit declined 40% yoy and 9.8% qoq driven by higher provisions

AC saw a lower 3QFY21 PAT (to ordinary shareholders) of RM42.1m, declining by 39.7% yoy and 9.8% qoq, attributable to a 40% qoq and 37% yoy increase in impairment losses on receivables. Meanwhile, 9MFY21 PAT declined by 40.7% yoy, largely due to a 22.2% yoy increase in provisions and a RM28.4m ‘mod-loss’ in 2QFY21. For 9MFY21, the annualized net credit cost had risen to 465bps compared to 391bps in 9MFY20, and meanwhile, sequentially from 2QFY21 to 3QFY21 were due to: i) higher write-offs; ii) a slightly higher impairment provision on new receivables; and iii) higher provisions for delinquent accounts (transferred from a pre-emptive provision in 2QFY21) following the end of the Aeon Relief Programme in Sept20.

Outstanding receivables growth remained subdued as at 3QFY21

AC’s receivables outstanding growth remained subdued, flat qoq and up 1.9% yoy, with ytd growth at -1.7%. Among the segments, motorcycle financing saw a more optimistic growth of 19.4% yoy while auto-financing was at 3.1% yoy. AC’s asset quality deteriorated in 3Q21, as its gross NPL ratio edged up to 2.88% from 1.95% as at 2QFY21 (driven by the temporary change in ‘write-off’ criteria in order to allow borrowers more time regularize their cashflows due to the impact of the pandemic). Its loan loss coverage ratio had remained adequate at 318% as at 3QFY21.

Maintain BUY, with 12-month Price Target unchanged at RM14.00

We reiterate our BUY rating on AC, with the PT unchanged at RM14.00 (based on a P/E target of 14x on the CY21E EPS of 100 sen). We will provide a further update pending more guidance from management. We look forward to a recovery year in FY22, underpinned by higher receivables growth of 7.9% yoy and a lower net credit cost of 362bps (vs. 456bps in FY21E). Downside risks: weaker asset quality and receivables growth

Source: Affin Hwang Research - 22 Dec 2020