s gleamed from its post-results briefing, AEONCR remains cautious on its prospects with the view that the pandemic will still be prevalent in the medium term. Given the risks of further CMCOs, receivables collection will likely be volatile implying still elevated Impairments. Post briefing we slashed slightly our FY22E estimate but TP is raised to 11.60 ascribing to its 5-year PER mean. While we take into account the positive vaccines development, challenges in distribution might necessitate further CMCOs ahead. Reiterate Market Perform.

Recap. 9MFY21 CNP of RM115m accounted for 41%/54% of our/market estimate as impairment losses remained elevated with muted financing receivables growth QoQ.

Impairments to remain elevated. Primarily the uptick in impairment losses (+40% QoQ) to RM157m due to higher provisioning (RM133m) on delinquent accounts was caused by: (i) end of Aeon Relief Programme and (ii) reduced repayment capability. This was mitigated by lower bad debts written off (RM56m vs 2QFY20: RM67m) due to temporary revision in write-off criteria and a reversal of RM57m (vs 2QFY02 pre-emptive provisioning of RM134m). The temporary revision is a blip and write-offs are expected to normalise ahead (RM80-90m by our estimates) forcing Impairment losses to remain elevated (in our view) but likely mitigated by further credit reversals and lower delinquent payment as D1 & D2 (delinquent payment) collection ratios have almost normalised at 77%/67% (bottoming out in Sep at 65%/52% necessitating higher provisioning for delinquent accounts). Bad debt recoveries are likely to remain soft pressuring further the elevated Impairments.

While provisioning remains elevated, NPL saw a 95bps uptick to 2.88% due to temporary change in write-off criteria with management guided for a normalised ratio of c.2.0% ahead.

Sombre receivables. Receivables saw positive growth YoY but flat QoQ as most segments saw negative growth being offset by Motorcycle Financing (MF) at +2% QoQ/+12% YoY. The other two major contributors Personal Financing (PF) and Auto saw weaker performance; at -2 QoQ/-6% YoY and -2% QoQ/+3% YoY. Management was hesitant to provide FY22 receivables target but growth will likely be underpinned by its most demanding segments; MF, PF (both giving better yields) and Auto Financing. Outlook is still cautious with the view that the pandemic will still be prevalent for 2-3 years. Double-digit growth is unlikely unless there is a robust recovery with no major CMCOs.

Post-briefing, we slashed our FY21E/FY22E earnings by -14%/-5%, as we revised our assumptions; (i) financing growth at +2%/+4% (from +5%/+5% previously), and (ii) IL of RM572m/RM569m (from RM528m/RM562m).

Call maintained. Our TP is raised slightly to RM11.60 (from RM10.15) based on a 5-year mean target PER of 10.7x (from 8.8x or 0.5SD below 5-year mean). While we take into account the positive vaccines development, we concur with the view that challenges in vaccines distribution which might necessitate further CMCOs ahead. Maintain Market Perform.

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

Source: Kenanga Research - 23 Dec 2020