Kenanga Research & Investment

AEON Credit Service (M) - Short-term Pain, Long-term Gain

Publish date: Wed, 29 Sep 2021, 08:52 AM

AEONCR’s 1HFY22 CNP of RM233.5m is deemed within our expectation (72%), but above consensus’ (79%) as we anticipate higher NPL and impairments in 3QFY22. DPS of 28.5 sen (79%) is above expectation. Impairment losses could increase sequentially, but beyond that, catalysts are: (i) receivables/volume recovery, (ii) normalisation of impairments, and (iii) potential digital bank license. No changes to earnings estimate, but raise FY22-23E DPS to 40.0-45.0 sen. Maintain OP with an unchanged TP of RM14.00 @ FY22E PER of 11x (mean). Presently traded at FY22E PER of 9.4x (-1.0SD from mean), we think AEONCR’s recovery prospects are under- appreciated.

Within our expectation, but above consensus’. 2QFY22 CNP of RM70.4m (- 57% QoQ; +51% YoY) brought 1HFY22 CNP to RM233.5m (+220% YoY), which is deemed within our (72%), but above consensus’ (79%) expectations. We anticipate higher NPL ratio and impairments in 3QFY22. DPS of 28.5 sen is above expectations at 79%.

Impairment losses take centre stage. YoY, 1HFY22 CNP leapt (+220%; from a low base) on the back of: (i) higher gross receivables (+3%), and (ii) lower credit cost (-3.3ppt) due to lower impairment losses (-60%) on post-2020 lockdown normalisation. QoQ, 2QFY22 CNP fell (-57%) due to: (i) lower fee income (-47%) crimped by movement restrictions, and (ii) higher credit cost (+2.8ppt) stemming from higher impairment losses (+297%).

Look beyond 3QFY22. While impairment losses could increase in subsequent quarters (delayed impact of the lockdown), beyond that we think AEONCR is well-positioned for recovery. There are indications of growth with total transaction and financing volume up 22% HoH in 1HFY22. As we look ahead into 2022, we see near-term catalysts being: (i) normalisation of impairments on improved accounts collections (beyond 3QFY22), (ii) pick up in financing receivables/total transaction and financing volume, as well as (iii) a potential digital bank license.

No change to earnings estimates. However, we tweaked FY22-23E DPS higher to 40.0-45.0 sen (from 36.0-40.0 sen).

Maintain OUTPERFORM with an unchanged TP of RM14.00 based on 3-year mean PER of 11x. Presently, AEONCR is traded at FY22E PER of 9.4x, 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 - 29 Sep 2021

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