• ACSM’s 1QFY18 net profit of RM75.8m came in within ours and consensus’ estimates.

• 1QFY18 earnings significantly jumped to RM75.8m (+20.9%yoy) partly boosted by bad debt recovery and commission earned from sale of insurance products

• We maintain our earnings forecast

• Maintain BUY with unchanged TP of RM21.40

AEON Credit Service (M) Berhad (ACSM)’s earnings were within expectations. ACSM’s 1QFY18 net profit of RM75.8m (+21%yoy) came within ours and consensus’ expectations at 26.9% and 27.8% of respective full year estimates. The strong 1QFY18 net profit was due to increased top line and other operating income.

Growth in 1Q18 earnings from higher income. The increase in 1QFY18’s net profit was mainly attributable to growth in (1) interest income of RM266.6 (+%17yoy and +5%qoq), and (2) fee income of RM35.7m (+9%yoy and -1%qoq) coming from higher rate of bad debt recovery.

Financing receivables improved. Financing receivables expanded significantly, by +17.4%yoy to RM6.7b. Meanwhile, interest income experienced strong growth driven by the expansion of the Company’s loan book, which saw double-digit growth (+17%yoy) amounting to RM6.7b for 1QFY18. The positive earnings was also reflected by the improvement in operating expenses which registered at 58.2% against revenue, compared with 60.5% in the corresponding quarter in 1QFY17.

Maintain earnings. We are maintaining our earnings forecast as the results came in within estimates.

Recommendation. We are positive by the strong growth in ACSM earnings. We believe that the positive growth trajectory will continue in FY18, given the optimistic prospect in GDP performance this year. Hence, we maintain our BUY call for the stock with an unchanged TP of RM21.40 as we peg its FY18 BVPS to 3-year historical average PB of 2.6x. We believe the change of our PB multiple basis (from 1 standard deviation below 5-year historical average before) is fair given the improving economic outlook.

Source: MIDF Research - 5 Jul 2017