• Aeon Credit’s collection trends have improved since last quarter despite the reinstatement of the MCO/CMCO in various states since January. Meanwhile, gross NPL ratio has been manageable, easing from 2.88% to 2.46% qoq
• The COVID-19 pandemic has hastened the digital transformation roadmap of financial institutions. Aeon Credit had implemented digital processes such as e-KYC and e-Application and will be spending another RM100m on IT capex
• Reiterate BUY, with a PT of RM14.40 (based on a 14x P/E multiple on revised CY21E EPS of 103 sen). Near-term catalysts include pent-up demand for motorcycles, used-cars and personal financing

Targeting High Single-digit Growth on Outstanding Receivables

At a recent briefing, management guided for high single-digit growth in FY22 outstanding receivables, which was lower than our previous assumption of 15% (as we anticipated a faster recovery pace and due to the low base effect earlier). Nonetheless, based on new receivables (sales) acquisition, Aeon Credit (AC) is targeting to achieve a double-digit (~13-15%) growth in FY22. AC will be focusing on personal financing, credit cards, motorcycles and objective financing as growth drivers in FY22, as the company is still cautious on new-car financing.

In FY22, Aeon Credit is looking towards sustainable business expansion

AC highlighted that the group will continue to look at sustainable ways to expand its business by diversifying its products and service offerings through cross-selling, which is also an avenue for fee-income generation. In the pipeline, AC is planning to expand its telemarketing capability and establish a centralized regional hub. It will embark on optimizing data analytics in order to better understand customer behaviour and enhance customer experiences.

Investment Thesis on Aeon Credit Remains Unchanged

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), personal financing (to meet refinancing needs), objective financing and used cars (better affordability).

Maintain BUY, With Marginal Adjustment to 12-month PT to RM14.40

We reiterate our BUY rating with our PT trimmed slightly to RM14.40 (from RM14.50) (based on a P/E target of 14x on CY21E EPS of 103 sen, adjusted down from 104 sen). Our revised assumptions for FY22E/23E/24E are as follows: i) receivables growth at +9%/+10%/+10%; and ii) net credit cost at 380bps/360bps/377bps. Downside risks: emergence of a 4th wave COVID-19, and weaker asset quality and receivables growth.

Source: Affin Hwang Research - 23 Apr 2021