AEONCR’s 1QFY22 CNP of RM163m is above both our/consensus’ expectations at 59%/60% largely due to higher-than-expected NIM and lower-than-expected credit cost. Indicative growth seen from total transaction & financing volume (+11.5% QoQ), while upcoming impairment losses should be more manageable. Raise FY22-23E CNP by 18-20% on higher NIM and lower credit cost. Upgrade to OP with higher TP of RM14.00 @ FY22E PER of 11x (mean). After a 9% share price decline from the peak in April, we think the negatives are priced in, with AEONCR being traded at merely FY22E PER of 9.3x (-1.0SD from mean).

Exceeds expectation. 1QFY22 CNP of RM163m (+50% QoQ; +521% YoY) is above both our/consensus’ expectations at 59%/60%. The deviation from our estimate is mainly due to: (i) higher-than-expected net interest margin (NIM), and (ii) lower-than-expected credit cost from lower impairment losses. Absence of DPS is as expected.

Best performing quarter. YoY, 1QFY22 CNP leapt (+521%; from a low base) driven by: (i) higher other operating income (+95%) mainly from higher bad debt recovery, and (ii) lower impairment losses (-87%) from reversal of impairment loss provision. Credit cost plunged to 0.9% (from 6.9%). QoQ, 1QFY22 CNP rose (+50%) due to: (i) lower credit cost of 0.9% (vs. 2.5% in 4QFY21) on lower impairment losses (-64%), and (ii) lower cost-to-income ratio of 36.2% (vs. 40.8% in 4QFY21) on lower operating expenses (-10%).

Position for the recovery. While impairment losses should increase sequentially in the subsequent quarters, we think the impact is unlikely to be as severe as in FY21. The opt-in structure of the six-month moratorium should also lessen the impact to top-line. After a 9% decline in share price, we think the negatives have been somewhat priced in. Meanwhile, there are indications of growth ahead as total transaction & financing volume rose 11.5% QoQ in 1QFY22. This is mainly attributable to: (i) motorcycle financing (+10% QoQ), and (ii) personal financing (24% QoQ). We expect credit card volumes to improve as movement restrictions ease in the coming months.

Raise FY22-23E CNP by 18-20% on higher NIM of c.11% (vs. 10.3%-10.8% previously) and lower credit cost of 4.6-4.4% (vs. 4.75-4.80% previously).

Upgrade to OUTPERFORM (from MP) with higher TP of RM14.00 (from RM13.05) based on lower 3-year mean target PER of 11x (from 12x) to reflect impairment uncertainties. Presently, AEONCR is traded at FY22E PER of 9.3x, reflecting -1.0SD from mean. Risks to our call include: (i) prolonged or stricter movement control order, (ii) extension of moratorium, and (iii) higher-than- expected impairment losses.

Source: Kenanga Research - 7 Jul 2021