INVESTMENT HIGHLIGHTS

• 9MFY18 earnings came in within estimates

• Attributable to better operating income in major segments

• No change to our earnings estimates

• We maintain our BUY recommendation with unadjusted TP of RM14.75

Within estimates. Aeon Credit’s 9MFY18 earnings climbed +5.2%yoy higher to RM70.6m. The group’s cumulative earnings accounted for 77.6% and 79.5% of ours and consensus’ expectations respectively, supported by steady progression in income of its biggest segments namely Automobile Financing, Personal Financing and Motorcycle Easy Payment. On quarterly basis, the group’s 3QFY18 net profit appeared flat.

Attributable to higher operating income in key segments. Overall earnings moderately improved due to growth in income of Automobile Financing, Personal Financing and Motorcycle Easy Payment. Personal financing which accounted for ~24% of operating income, recorded an increase of +22.0%yoy. Meanwhile, both Automobile Financing’s and Motorcycle Easy Payment’s operating income also advanced higher.

Operating expenses increased slightly. The group’s earnings were moderated by higher overall operating expenses as it increased +14.0%yoy. We note that the increase was primarily driven by impairment provision on receivables along with net addition of staff, which led to higher operational costs. Moving forward, we expect operational expenses to be stable due to management’s initiatives to drive down cost. Key to achieving this will be its value chain transformation where paperless transaction will be a primary focus for providing future services. We believe this will lead to leaner operation and improved turnaround time.

No impact on earnings. Given that the results came in within our expectations, we maintain our earnings estimates for FY18 and FY19 respectively.

Valuation. We maintain our BUY recommendation on Aeon Credit with an unchanged TP of RM14.75, pegging the group’s FY19 BVPS to PBV of 2.8x. We continue to be optimistic on the outlook on the group’s business based on its value chain transformation journey. In addition, we are positive on the group’s initiatives to improve customer experience via the the introduction of e-wallet and e-money cards, in which we opine will improve the customers’ brand loyalty with Aeon Credit. Potential re-rating for the group’s earnings would be 1) the outcome of upcoming proceedings between IRB and Aeon Credit, and 2) lower than expected future earnings (FY19 onwards).

Source: MIDF Research - 22 Dec 2017