FY23 net profit of RM417.7m (+14% YoY) came within expectations but full-year dividend payment of 49.5 sen missed our mark due to a more conservative payout. We await further updates from an analyst briefing today, particularly on FY24 guidance. As for FY23, all targets have been mostly met with ROE above 15% and financing growth at 10%. Maintain OP and GGM-derived PBV TP of RM16.95.

FY23 within expectations. FY23 net profit of RM417.7m came in within expectations, at 95% of our full-year forecast and 102% of consensus’ full-year estimate. That said, a final dividend of 21.0 sen disappointed pushing the full-year dividend of 49.5 sen (30% payout) below our anticipated 62.0 sen. The gap is caused by slightly lower earnings and our higher expected payout of 35% (based on historical average).

YoY, FY23 net interest income gained 9% thanks to a larger financing receivables base (+10%) while net interest margin also rose (11.37%, +48 bps) with the entry of higher yielding accounts. On the flipside, other operating income increased by 17% as fee-based income was supported by higher transaction volumes. Operating expenses softened (-3%) slightly on lower personnel expenses and thanks to the higher top line, cost-income ratio improved to 34.6% (-5.0 ppt). Meanwhile, net impairments rose by 48% possibly due to the absence of assistance and additional overlays. All in, FY23 net profits came in at RM417.7m (+14%).

Outlook. To address possible strains on asset quality from inflationary pressures, the group’s credit criteria will be tightened mainly for its motor segment (36% books composition, namely for mopeds) which also has a high concentration of B40 customers. The return of economic activities, meanwhile, could spur more personal financing needs. On the other hand, to keep expenses manageable, the group has embarked on digitalising its back-end operations with a digital on boarding platform which enables instant conditional approval as one of its recent key initiative. This on-boarding method could be implemented into the group’s key personal financing segment as well.

Forecasts. Post full-year model updates, our FY24F earnings remain largely unchanged, pending further updates from an analyst briefing today. Meanwhile, we introduce our FY25F numbers, which reflects 2.6% growth in bottom line as we anticipate eroding interest margins to offset growth in the group’s financing books.

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 - 12 Apr 2023