INVESTMENT HIGHLIGHTS

• ACSM’s FY17 net profit of RM265.0m (+16.1%yoy) came in above ours and consensus expectation

• 4QFY17 earnings significantly jumped to RM80.1m (+17.5%yoy) attributable to higher revenue and other operating income

• We revised our FY18 and FY19 earnings forecast upwards by +10.2% and +7.7% respectively

• In light of the better performance, which we believe will be carried forward to FY18, we are upgrading our call to BUY with revised TP of RM18.20 (from RM15.82) as we peg the BVPS to PBV of 2.4x which is 1 standard deviation below its 5-year average ACSM’s earnings were above expectations.

ACSM reported a strong 4QFY17 net profit of RM80.1m (+17.5%yoy and +19.4%qoq), with FY17 earnings came in at RM265.0m (+16.1yoy) that reflected an increase in top line and other operating income numbers. The growth in earnings was also contributed by improvement in asset quality. As such it came in 112% and 107% above ours and consensus’ respective FY17 estimates.

Growth in 4Q17 earnings from higher income. The increase in 4QFY17’s net profit was mainly attributable to growth in (1) interest income of RM254.7m (+13%yoy and +4%qoq), and (2) fee income of RM36.1m (+10%yoy and +1%qoq) thanks to the higher rate of bad debt recovery.

Financing receivables improved. Interest income experienced strong growth driven by the expansion of the Company’s loan book, which saw double-digit growth (+19%yoy) amounting to RM6.53b for FY17. The increase was mainly contributed by growth in Personal Financing of RM1.6b (+36.2%yoy), Automobile Financing of RM2.0b (+23.9%yoy) and Motorcycle Easy Payment scheme of RM1.8b (+13.0%yoy).

Asset quality remained healthy. The company’s aggressive collection effort has improved the rate of non-performing loan by -0.2ppts (yoy) at 2.28%. ACSM will continue to improve the profitability via various initiatives (i.e value chain transformation project, digitization of branch operations etc).

Revising earnings upwards. We revised our FY18 and FY19 earnings forecast upwards by +10.2% and +7.7% respectively to reflect improvements in key areas such as better interest income stemming from better growth in loans book.

Recommendation. We were pleasantly surprised by the strong growth in ACSM earnings and loans book. We believe that this loans book growth momentum will be carried over to FY18, given that our in-house economics team expect better GDP performance this year. Another potential upside is the impact from increased productivity via Management’s Value Chain Transformation program. Hence, we are upgrading our recommendation to BUY with revised TP of RM18.20. Our TP is based on pegging its FY18 BVPS to PBV of 2.4x which is 1 standard deviation below its 5-year average.

Source: MIDF Research - 26 Apr 2017