• We have revised down the FY21E earnings by 19.5% as we account for an additional tax expense of RM10.3m and the impact of lower interest income arising from subdued receivables growth in 2HFY21.
• The reinstatement of the CMCO in KL-Selangor is expected to affect collection activities, though this may not be overly detrimental to earnings. We have also trimmed the FY21E receivables growth assumption to 3.5% (from 5.7%).
• Reiterate BUY, with a revised PT of RM13.50 (based on a 14x P/E multiple on CY21E EPS of 96.5 sen). We foresee some near-term catalysts from growth in motorcycle, used-car and personal financing.

Earnings revision due to a cautious 2HFY21E outlook; expect recovery in FY22E

Overall, we have revised down the FY21E net earnings by 19.5% to account for lower interest income from receivables (receivables growth had remained subdued in 3QFY21) as well as the additional tax expense of RM10.3m (arising from an out-of-court settlement). We have also made some housekeeping adjustments to FY22-23E earnings (on receivables and overheads), which resulted in minor revisions of -4.2% and +0.2%.

Near-term outlook a little subdued, dampened by reinstatement of the CMCO

Based on a recent management discussion, the reinstatement of the CMCO may have a slight impact on Aeon Credit’s (AC) collection activities, and hence affect its bad-debt recoveries to a certain extent. Meanwhile, new receivables growth in 4QFY21E is not expected to be as robust as we anticipated earlier due to a more cautious stance as the CMCO was further extended given daily cases have been high.

Outlook Over the Longer Term Remains Positive for Aeon Credit

We maintain our investment thesis on AC, i.e. the company continues to find niche opportunities amidst the pandemic, which has fuelled demand for more motorcycles (given the e-commerce boom), used-cars (better affordability) and personal financing (to meet refinancing needs).

Maintain BUY, with 12-month Price Target adjusted to RM13.50 (from RM14)

We reiterate our BUY rating with our PT lowered to RM13.50 (based on an unchanged P/E target of 14x on CY21E EPS of 96.5 sen). Our revised assumptions for AC (FY21E/22E/23E) are as follows: i) receivables growth at 3.5% / 8.0% / 7.5%; and ii) net credit cost at 460 / 370.6 / 355bps. These were revised from +4.9%/+7.9%/+7.5% for receivables growth and 456 / 362 / 356bps in net credit cost. Downside risks: weaker asset quality

Source: Affin Hwang Research - 6 Jan 2021