AEON’s FY21 results came in slightly below at 93% of our expectations. While topline was still challenging, better product mix in the 4QFY21 resulted in a gradual improvement in margins as it remained focused on the better yielding motorcycle, personal and auto financing. We look forward to broad-based improvements ahead on easing pandemic risks. Raised TP to RM13.05 while call maintained at MARKET PERFORM

In Line. 12MFY21 CNP of RM224m accounts for 93%/124% of our/market estimate. Net Interest margins improved sequentially in 4QFY21 coupled with lower provisionings. A Final DPS of 20 sen was declared bringing total DPS for the year at 29.2 sen (below our estimates of 37 sen) but payout ratio of 32% was similar to FY20 ratio of 31.5%

YoY, CNP for the full year fell 18%, as topline fell and impairment allowances surged +13% cushioned by sharp fall in operating expenses (opex) of 11%. Topline saw a -5% dipped to RM1.35b as NII fell 3% to RM1.04b. Financing receivables remained resilient falling slightly by 3% to RM10.01b with Net Interest Margin (NIM) falling by 90bps to 10.8% compounded by margin pressure in 2QFY21 (due to poor receivables mix and modification losses). Fall in receivables were broad-based mitigated by uptick in Motor Cycle financing which saw an +8% uptick. Impairment losses saw a +13% uptick to RM508 occasioned by the effects of the pandemic leading to a credit charge of 5.4%. Cost-to-Income ratio improved slightly by 2ppts to 38% as opex was well contained falling 11%.

QoQ, Despite the on-going lockdown, 4QFY21 saw its best performing quarter as CNP surged +156% to RM109m owing to an improvement in topline (4%) and lower provisioning (-58%). Topline was helped by a 2nd consecutive quarter NIM improvement by 50bps to 11.5% (coming from better product mix). Receivables continued to remain under pressure (-1.4%) but Motorcycle receivables remained resilient at +1%. The lower impairment allowances of RM65m were underpinned by writebacks (RM92m) offset by a RM158m write-offs (+182%).

Gradual Recovery Ahead. No change in our view of a gradual recovery ahead given the ease of restrictions and the gradual roll-out of the vaccination programme. While receivables saw a slight dip quarter to quarter given the prevailing lock-down Total Transaction & Financing Volume continued to remained robust at RM1.26b or +3% QoQ. Approval ratio continues to be on the uptrend - from a low of 23% (May 20) to 36% (Feb 21) - as the focus continues on the right customers and their needs. NIM continues to improve since 3QFY21 given its focus on its higher yielding and demanding segments; Motor Cycles, Personal Financing and Auto Financing. The low interest rate environment and gradual improvement in the job market looks likely to push its approval higher rate hence boosting its financing receivables further.

Post results, no changes to our FY22E estimates and we introduce our FY23E earnings.

Call maintained. Our TP is raised to RM13.05 (from RM11.60) based on a higher 5-year mean target PER of 12.1x (from 10.7x) on easing pandemic risks as vaccine roll out gathers pace. Reiterate Market Perform.

Risks to our call include: (i) new wave of the pandemic leading to prolonged counter-measures (i.e. prolonged or enhanced movement control order).

Source: Kenanga Research - 9 Apr 2021