INVESTMENT HIGHLIGHTS

• Results came in within expectations

• Attributable to higher income in major segments

• Expenses to improve with leaner operation

• No change in earnings estimates

• Maintain BUY with adjusted TP RM14.75 (from RM14.27)

Within estimates. 1HFY18 earnings climbed higher by +25.0%yoy. It translated to 52.4% and 53.7% of ours and consensus’s expectations. Overall revenue of 1HFY18 grew by +16.0%yoy, supported by the improvement in income of its three biggest segments namely Personal Financing, Automobile Financing and Motorcycle Easy Payment. On quarterly basis, 2QFY18 net profit increased by +29.0%yoy.

Attributable to higher income in major segments. Higher performance in overall earnings was underpinned by the income growth in Personal Financing, Automobile Financing and Motorcycle Easy Payment. Personal Financing which represents 24% of the company’s operating income (2nd biggest segment) recorded the highest increment in 2QFY18 earnings which grew+30.0%yoy. Meanwhile for Automobile Financing and Motorcycle Easy Payment, both recorded double digit 2QFY18 growth, by +17.0%yoy and +14.0%yoy respectively.

Non-performing Loans appeared flat. NPL ratio stood at 2.48%, +5bps yoy. However, both Motorcycle Easy Payment’s and General Easy Payment’s NPL ratio improved by -0.44ppts yoy and -0.07ppts yoy respectively. On OPEX, the company experienced an increase of +14.0%yoy mainly driven by personnel cost. However, we note that the ratio of total operating expenses against revenue in 2QFY18 was 59.3% vs 63.6% in the same period last year. The improvement of -4.3ppts yoy was due to lower increase in OPEX stemming from its value chain transformation programme.

Expenses to improve with leaner operation. The value chain transformation started to bear fruit with the completion of cashless and paperless operation for branches nationwide. Overtime expenses and Cash in Transit posted reductions of -53.0%yoy and -89.0%yoy respectively for the 1HFY18. We expect there will be further reduction in OPEX coming from the utilization of the abovementioned initiative for the rest of the year.

Proposed Interim Dividend. The company has proposed interim dividend of 21.13sen which represents a annualised dividend yield of 3.3%.

Earnings estimates. We maintain our earnings estimates as the results came in within our expectation.

Valuation. We maintain our BUY recommendation on Aeon Credit with an adjusted TP of RM14.75. This is based on rolling over our valuation to FY19 where we peg the BVPS to 3-year historical average PB (1 standard deviation below) of 2.5x. On the impact from MFRS9, the management indicated that further announcement will be circulated in due course, pending full completion of its assessments. We believe any risks coming from the new provisioning will be mitigated by the company’s prudent credit management exercise. Prior to our view, we believe now that there is sufficient catalyst for Aeon Credit in the form of consistent improvement in loan growth thanks to its niche market exposure and superior NIM ratio which is at double digit in comparison to banking stocks. We opine the company is able to maintain its performance in the 1HFY18 driven by seasonal factors for the rest of the year.

Source: MIDF Research - 6 Oct 2017