3QFY21 CNP fell 10% QoQ due to higher-than-expected impairment allowances while NIM improved on better receivables mix offset by flattish growth. We believe the still elevated impairment allowances were due to lower bad debt recoveries given the prolonged CMCO. Improved receivables and lower impairments are likely ahead as the CMCO is expected to be over by the end of the year. Pending ACSM’s briefing later today, we maintain our earnings forecasts, TP of RM10.15 and MARKET PERFORM call.

Broadly tracking expectations. 3QFY21 CNP of RM42m (-10% QoQ/-40% YoY) brought 9MFY21 CNP to RM115m accounting for 41%/54% of our/market estimate. We consider the results to be broadly in line, given the improved NIM with receivables growth likely to improve ahead as challenges receded post CMCO. While higher impairment losses were unexpected, we expect it to normalise ahead as the economy slowly improves.

Better receivables mix. 3QFY21 top-line saw improved performance (+12% QoQ/flattish YoY) to RM352m as NII saw +15% QoQ/-2% YoY growth to RM268m boosted by surging Transaction & Financing Volume (+27% QoQ, -23% YoY) and improved NIM (+143bps to +11%). The improved NIM is attributed to better receivables mix as management focussed on its higher yielding segments (motorcycles and personal financing). Financing receivables was flattish QoQ (or +2% YoY, falling short of our expectation of +5% YoY). Impairment allowances rose 40% QoQ/37% YoY to RM156m leading to an annualised credit charge of 6.6% for the quarter (or 6.2% for 9MFY21 vs. our expectation of 5%). Given the positive JAW, CIR remained contained at 39% for 3QFY21.

Net credit charge remained stable. As expected, NII improved given the focus on higher yielding assets to compensate for the challenges in growing its receivables during the CMCO period. In its presentation slides, AEON showed that its net credit charge had remained relatively stable at 4.6%, thus likely that the higher impairment allowances for the period were due to lower bad debts recovered. A major concern is its NPL which surged 93bps to 2.9% (vs. 3-year average of 2.2%) post moratorium but likely to normalise as the economy slowly recovers.

We left our FY21E numbers unchanged for now, pending updates from management in today’s briefing. MARKET PERFORM call and TP of RM10.15 (based on FY22E PER of 8.8x) unchanged for now.

Risks to our call include: (i) higher/lower-than-expected cost ratios, (ii) better/weaker-than-expected financing receivable growth, (iii) better/weaker-than-expected asset quality, and (iv) worsening pandemic impact leading to prolonged counter-measures (i.e. prolonged or enhanced movement control order).

Source: Kenanga Research - 22 Dec 2020