Period   1Q14/3M14

Actual vs.  Expectations   The 1Q14 net profit of RM41.3m was within our expectations and that of the consensus, making up 26.5% and 26.0% of the forecasts respectively.

Dividends     No dividend was declared as expected.

Key Result Highlights    YoY,  the 1Q14 revenue rose 41.6% to RM143.9m from RM101.6m, backed by a higher financing transaction volume from vehicle financing and personal financing segments. The total financing receivables in 1Q14 rose to RM2.7b from RM1.6b in the preceding year (+61.8%). The 1Q14 net profit improved by 28.1% to RM41.4m, underpinned by continued growth in business coupled with better cost efficiency and a lower ratio of net impairment loss charge over average financing receivables. Thanks to the continued growth in fee income, sales of insurance, collection commission and increase in recovery of bad debts, the EBIT margin of the group was marginally up by 2.5ppt to 52.6% from 50.1%. The NPL fell to 1.57% from 1.68%. The asset quality of the group remains healthy.

QoQ,  AEONCR’s net profit grew 6.2% to RM41.4m, which was mainly attributable to the higher growth in receivables and increased financing transaction volume.

Outlook    AEONCR plans to further strengthen its presence in the mass consumer credit by expanding its business network as it banks on the strong private consumption in the local economic growth. It is looking to add 12 branches (38 currently) and 18 kiosks (3 currently) in FY14.

Change to Forecasts    No changes in our forecasts.

Rating    Maintain MARKET PERFORM

At the current level, the stock offers a potential capital upside of 3.6% coupled with a dividend yield of 3.6%, which add up to a potential total return of 7.2% over the next 12 months.

Valuation    Due to the recent bullish market sentiment and our re-rating of the stock’s valuation parameter, we have revised our TP higher to RM17.20 (RM15.90 previously) based on a higher multiple of 13.0x (from 12.0x previously) on its FY15 EPS.

Risks   A higher than expected NPL could drag the earnings downward.

Source: Kenanga