Kenanga Research & Investment

AEON Credit Service (M) - FY22 Missed Expectations

Publish date: Wed, 06 Apr 2022, 08:40 AM

AEONCR’s FY22 net profit of RM365.4m disappointed due to lumpy impairment provisions registered in 4QFY22, possibly as customers reprioritised repayment pattern. Still, a 20.0 sen total dividend declared was as expected. We believe the group would be a beneficiary of economic recovery with digital banking prospects keeping interest intact. Maintain OP but slightly narrow our TP to RM16.45 (from RM16.60) as our reduced provision exposure in FY23 is offset by a softer applied valuation. (10.0x from 10.6x).

FY22 missed. FY22 net earnings of RM365.4m came below our/consensus estimates, only making up 87%/86% respective estimates. The negative deviation is due to significantly wider booking of impairment losses in 4QFY22 of RM154.7m (3QFY22: RM33.1m) as the repayment trend of the group’s portfolio appears to be adversely affected by the lapse of assistance programs. That said, the final dividend of 15.0 sen and special dividend of 5.0 sen declared brings FY22 total payment to 48.5 sen, which we deem within our earlier 50.0 sen assumption.

YoY, FY22 saw a flattish decline of net interest income (-1%) as both gross financing receivables (-2%) and NIM (10.62%, -6bps) trended similarly. This was lifted by non-fee based income, tipping total income for the year slightly (+2%). CIR inched up to 39.6% (+1.4ppt) on higher personnel expenses but thanks to 40% improvement in impairments and provisions recorded, net earnings surged to RM365.4m (+56%).

QoQ, 4QFY22 reported a 5% decline in income as NIM eased (-77bps) amidst growth in financing accounts (+3%) as demand was fuelled by higher economic spending. However, 4QFY22 was marred by write-offs and provisions amounting to RM154.7m (vs 3QFY22: RM33.1m). In spite on the higher loans base, repayment trends of existing accounts appears to be troubled no thanks to the lapse of assistance programs, which we reckon could be customers opting to repay bank loans over other financing channels. This led 4QFY22 net profit to come in at RM23.4m (-77%).

Financing industry still has room. We anticipate financiers to be overall beneficiary of the ongoing economic recovery as consumer spending resumes, demonstrated by the group’s recent quarter’s expansion. On a YoY basis, total transaction increased by 13%, indicating that perhaps smaller ticket items are still in favour. Although repayment issues may be a concern in the near-term, we believe this should normalise in the subsequent periods as income and cash-flows returns to the pockets of consumers.

Post results, although FY22 ended in disappointment, we believe that the additional provisions made by AEONCR could be written back in the following period on our stance that economic recovery would rejuvenate income and cash-flows. As such, we reduce our overall impairment estimates for FY23, resulting in a 5% increase in earnings. We also introduce our FY24E numbers.

Maintain OUTPERFORM with a slightly lower TP of RM16.45 (from RM16.60). Though we raised our FY23E earnings, we narrow our applied PER of 10.6x to 10.0x (0.5SD below mean) as we believe investors may be more cautious on the stock’s near-term sustainability amidst the impairment shock seen in this recent results. That said, pending BNM’s announcement, AEONCR still sits as a prospective contender for a digital banking license given its accessibility to the e-wallet space and backing by the larger AEON Financial Service Co Ltd, Japan.

Source: Kenanga Research - 6 Apr 2022

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