9MFY23 net profit of RM322.3m (-6%) is within our expectations on more stable earnings delivery in 4QCY23. While provisions are notably higher than the preceding year, we believe levels should normalise with asset quality controls in place. We await further updates from today’s briefing. So far, the group’s loan growth target of 10% appears well achieved. Maintain OP and GGM derived PBV TP of RM16.95.

9MFY23 in line with our numbers. 9MFY23 net profit of RM322.3m made up 73% of our full-year forecast but accounted for 83% of consensus’ full-year estimates. We believe the difference in expectations is due to possibly heavier impairments to be seen in 4QCY23 by consensus, while we expect the contrary on normalising credit charges going forward. No dividend was declared this quarter as expected given the group’s typical biannual payments.

YoY, 9MFY23 net interest income inched up (+3%) on the back of higher gains in financing receivables (+10%) while net interest margins saw a slight bump (11.21%, +31 bps). Other income items also rose by 20% as fee-based streams benefited from higher transactions. Meanwhile, the cost-income ratio improved to 33.3% (-6.5ppt) likely thanks to lower personnel expenses. However, as impairments saw a 123% rise possibly due to the absence of assistances and additional overlays, 9MFY23 net earnings were 6% lower at RM322.3m.

More stable numbers may be expected. Although earnings growth was mainly bogged down by higher provisions made, we take comfort in the fact that sequential quarterly trends indicated some moderation (-4%) with overlays in place that could buffer further dents in 4QCY23. On the flipside, the group appears to be on track to meet its 10% loan growth target which could be attributed by successful digital offerings in spite of inflationary concerns raised in the past. Further streamlining of costs may also keep efficiency buoyant with automation taking charge of highly administrative processes (i.e. credit processing).

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

Maintain OUTPERFORM and TP of RM16.95. Our TP is based on an unchanged GGM-derived PBV of 1.68x (COE: 12.3%, TG: 2.5%, ROE: 19%) on an estimated CY23 BVPS of RM10.23. Against conventional banking institutions, AEONCR commands a leading ROE of >20% albeit with more modest dividend yields (5%). We continue to expect sentiment for the stock to improve with subsequent updates as it is a proxy to stronger GDP output while its Islamic digital banking licence extends new value propositions to customers.

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-anticipated write-backs.

Source: Kenanga Research - 22 Dec 2022