• Aeon Credit’s (AC) FY21 results beat our and consensus estimates by 34% and 24% respectively, driven by reversals in impairment provisions on the back of favourable delinquency movements
• Receivables growth remained subdued (-3.0% yoy; -1.4% qoq) as at 4QFY21, in-line with management’s stringent approvals as well as due to the impact of write-offs. Gross NPL ratio rose to 2.46% in 4QFY21 from 1.92% in 4QFY20
• Maintain BUY, PT raised to RM14.50 (based on a 14x P/E multiple on revised CY21E EPS assumption of 104 sen). A final DPS of 20 sen was proposed in 4QFY21 (4QFY20: 14 sen)

4QFY21 net profit was up 35.7% yoy and 157.8% qoq; FY21 earnings -18.4% yoy

AC saw its 4QFY21 claw back some profits due to reversals in impairment provisions (driven by favourable delinquency movements), resulting in a 157.8% qoq and 35.7% yoy growth in PAT (to ordinary shareholders). Otherwise, we saw relatively flat top-line growth, as interest income from receivables tapered off as a result of a decline in receivables outstanding qoq. Meanwhile, FY21 PAT declined by 18.4% yoy, largely due to the weaker results in 1QFY21-3QFY21 (due to a significant increase of provisions and expected credit loss buffers) as well a RM28.4m ‘mod-loss’ in 2QFY21. Overall, FY21 NCC stood at 373.6bps vs. 341bps in FY20.

Receivables Growth Remained Subdued, Due to Write-offs in 4QFY21

AC’s receivables outstanding growth remained subdued in FY21 (-3.0% yoy), due to impact of the MCO/CMCO and weak consumer sentiment, coupled with the write-offs undertaken by management. Among the segments, motorcycle financing was the only segment with a robust growth of 14.5% yoy. Given a challenging year, it was also not a surprise to see AC’s asset quality in terms of gross NPL ratio rose to 2.46% from 1.92% in FY20. We expect asset quality to improve in FY22E-24E, as we look forward to a recovery in business and consumer sentiment, in-line with a pick-up in economic activities.

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

We reiterate our BUY rating and raise our PT to RM14.50 (based on a P/E target of 14x on revised CY21E EPS of 104 sen from 96.5 sen). The change in CY21E EPS assumption was driven by the impact of a better profit outcome in 1QCY21 (as reported). Meanwhile, the marginal adjustments in FY22-23E EPS were due to a lesser dilution effect in share base. Our assumptions for FY22E/23E/24E are as follows: i) receivables growth at +15.3%/+7.5%/+7%; and ii) net credit cost at 370.6/355bps/380bps. Downside risks: weaker asset quality and receivables growth.

Source: Affin Hwang Research - 9 Apr 2021