INVESTMENT HIGHLIGHTS

• ACSM’s 9MFY17 net profit of RM185.0m (+16%yoy) came in line with our and consensus expectations

• 3QFY17 earnings grew to RM67.1m driven by higher revenue and other operating income

• We fine-tuned our earnings forecast to reflect better improvement in some key areas

• We upgrade to TRADING BUY recommendation with adjusted TP of RM15.82

9MFY17 earnings were within expectations. ACSM reported a strong 3QFY17 net profit of RM67.1m (26%yoy and 21%qoq), with 9MFY17 earnings came in at RM185.0m (16%yoy) that reflected increase in top line and other operating income numbers. Despite the robust growth, its 9M earnings was much in line with our and consensus expectations.

Higher growth 3QFY17 earnings. The increase in 3QFY17’s net profit was largely due to higher (1) interest income of RM244.8m (15%yoy and 4%qoq), (2) fee income of RM35.6m (6%yoy and 8%qoq) and (3) other operating income of RM28.4m (31%yoy and 14%qoq) thanks to higher bad debts recovered, better commission income from sale of insurance products and AEON Big Loyalty programme processing fees.

Financing receivables expanded. The strong interest income was driven by the expansion of the Company’s loan book, with a double-digit growth of 20% (in line with Management’s target) to reach RM6.3b for 9MFY17. It was mainly contributed by personal financing of RM1.5b (39%yoy), automobile financing of RM1.9b (30%yoy) and motorcycle easy payment scheme of RM1.8 (12%yoy).

Asset quality improved. The Company’s non-performing loans have continued to improve to 2.3% due to intense collection effort. The Company will continue to explore opportunities to improve the profitability via various initiatives (i.e. value chain transformation project, digitalisation of branch operations etc).

Impact on earnings. We fine-tuned our earnings forecasts numbers to reflect improvement in some key areas. However, we remain neutral on its outlook due to uncertainty in macroeconomic condition that will limit its profitability.

Recommendation. We upgrade to TRADING BUY recommendation with an adjusted target price of RM15.82 due to value emerging, which implied PER of 9x only. Our valuation is derived based on FY18F book value of RM7.51 pegged

Source: MIDF Research - 23 Dec 2016