We maintain our OUTPERFORM call and GGM-derived PBV TP of RM16.15. AEONCR is proposing to undertake a 1:1 bonus issue at a yet to be decided ex-date. This marks AEONCR’s third bonus issue since 2012 which is also at the most generous quantum. We are overall positive as it adds liquidity to the stock and would make market participation more assessable. Fundamentals remain unchanged.

1:1 bonus issue a positive. Last Friday, AEONCR proposed to undertake a 1-for-1 bonus issue to reward its existing shareholders. Historically, the group had undertaken such exercises close every 5-6 years with positive impact to its share price.

Below is the outcome of past exercises and their corresponding ex dates.

1. 1:5 bonus issue announced at 18 Jun 2012 with an ex-date at 11 Sep 2012, gaining c.70% in adjusted capital gains as at 17 Jun 2013

2. 1:2 bonus issue (with right issue) announced at 23 Mar 2017 with an ex-date at 14 Jul 2017, gaining c.15% in adjusted capital gains as of 23 Mar 2018

This indicates that this new proposed bonus issue would translate to the highest share base enlargement exercise for the group. That said, we believe the overall exercise would be beneficial for the stock as the halving of its share price could make it more palatable for retail participation. This could aid in reverting the stock’s currently depressed forward valuation of 1.1x PBV closer to its 5-year average of 1.6x PBV.

Forecasts. Post announcement, we leave our FY24F/FY25F earnings unchanged for now. We await the completion of the proposed exercise before we reflect its effective enlarged share base into our model. There are no earnings accretive adjustments to be made as it does not involve any fund raising activities.

Maintain OUTPERFORM and TP of RM16.15. Our TP is based on an unchanged GGM-derived PBV of 1.44x (COE: 12.3%, TG: 1.5%, ROE: 17%) on an estimated CY24 BVPS of RM11.25. Against conventional banking institutions, AEONCR commands a leading ROE of >15% 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 - 17 Jul 2023