INVESTMENT HIGHLIGHTS

• The share price of AEON Credit has gone up swiftly of late to RM16.02 yesterday. We view the price rally can continue but it may not be sustainable

• We remain cautious with its financing receivable growth although it will continue to expand by double digit into FY18

• We maintain our earnings forecast at this juncture

• We revert to NEUTRAL recommendation from TRADING BUY pursuant to recent run-up in share price with an unchanged TP of RM15.82

The run-up in its share price may not last long. It has not gone unnoticed that the share price of AEON Credit has rallied swiftly of late, which have reached a new 52-week high yesterday. We opine that the run-up in its share price was partly due to strong 3QFY17 result numbers last month. However, the results were much in line with ours and consensus’ expectations. We think the price rally can continue but it may not be sustainable as current share price has already reflected our FY18 forecast numbers. We expect there may be some profit taking activities after posting an +11% gain since the start of the year.

The outlook may not be as rosy as before. While we expect overall financing receivable growth will continue to expand by double digit into FY18, the growth number is reduced to mid-teens. This is on the view that rising household debt in Malaysia may curb the successfulness of loan applicants. In addition, soft demand may also limits consumers to increase their spending in discretionary goods via credit. All in, this may implies a slightly lower loan growth moving ahead. Based on latest industry’s numbers, the loans approval rate appears to be on a weaker side, where it came in lower at 42% in the month of November 2016, vs. 49% in October 2016.

Impact on earnings. We make no changes to our existing forecast numbers at this juncture. We are expecting its earnings to grow only by 3.4% in FY17 and still a single digit number in FY18 of 7.9%.

Recommendation. As the share price of AEON Credit has already been stretched above our valuation pursuant to the recent run-up, we revert our recommendation to NEUTRAL from TRADING BUY with an unchanged target price of RM15.82. Our valuation is derived based on FY18F book value of RM7.51 pegged to 2.1x, which is 1-standard deviation below its 3-year historical median PBV of 2.7x.

Source: MIDF Research - 19 Jan 2017