1HFY23 net profit of RM238.7m (flattish YoY) is within our expectation on expectations for more balanced earnings on lower operating costs and more stable provisioning needs. An interim dividend of 28.5 sen is also within expectation. We await further updates from today’s briefing but believe that the group’s FY23 targets and outlook should remain intact. Maintain OP and GGM derived PBV TP of RM17.20.

1HFY23 in line with our numbers. 1HFY23 net earnings of RM238.7m made up 50% of our full-year forecast. However, it made up 63% of consensus’. While we believe the group will deliver more normalised earnings amidst a more stable economic and business environment, the street appears to still be anticipating asset quality challenges and higher operating cost. An interim dividend of 28.5 sen (30% payout) was declared, which is also within our anticipated 62.0 sen full-year payment.

YoY, 1HFY23 net interest income was slightly lower (-2%) due to pressure in NIMs (10.98%, -17bps) but cushioned the 8% rise in financing receivables. which probably led to the jump in fee-based income by 32%. All in, total income rose by 5%. Although CIR narrowed to 32.0% (-6.3ppt) on lower personnel expenses, net impairments were bumped by 62% which we see a normalisation of credit costs (3.7%, +1.4ppt). Overall, this translates to 1HFY23 coming in flat at RM238.7m (+<1%).

Risks kept in check with tighter controls. Healthy economic growth projections are likely to drive the group’s >10% loans growth target for FY23, which could also be fuelled by its more comprehensive digital offerings. Although a higher financing base may give rise to further asset quality risks, the group sought to tighten its credit policies by increasing down payments and push for shorter financing terms. Meanwhile, we opine the group would be able to sustain its CIR as a higher degree of automation (namely in credit processing) could translate to better cost savings in the near term.

Forecasts. We leave our FY23F/FY24F earnings unchanged for now, pending further updates from today’s analyst briefing.

Maintain OUTPERFORM and TP of RM17.20. Our TP is based on an unchanged GGM-derived PBV of 1.68x (COE: 11.7%, TG: 2.5%, ROE: 19%) on its estimated CY23 BVPS of RM10.23. Against conventional banking institutions, AEONCR commands a leading ROE of >20% albeit with more moderate dividend yields (4-5%). We continue to expect sentiment for the stock to improve with subsequent updates as a proxy to better GDP output and with their Islamic digital banking license allowing them to propose new value propositions to customers. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us.

Risks to our call include: (i) lower-than-expected receivables growth, (ii) extension of moratorium, (iii) higher-than-expected impairment losses, and (iv) lower-than-expected write-backs.

Source: Kenanga Research - 30 Sept 2022