INVESTMENT HIGHLIGHTS

• ACSM’s 1QFY19 net profit of RM99.2m came in above ours and consensus’ estimates

• 1QFY19 earnings was considerably higher (+30.9%yoy) due to higher income from both interest and fees

• We revised our forecast slightly upwards for FY19

• Maintain BUY with adjusted TP of RM15.40 as we rollover our valuation to FY20

Above expectations. Aeon Credit’s 1QFY19 earnings climbed +30.9%yoy higher to RM99.2m. The result was 32.3% and 31.2% of ours and consensus estimates, which was slightly higher.

Growth in 1Q18 earnings from higher income. The increase in 1QFY18’s net profit was mainly attributable to growth in (1) interest income of RM287.0 (+%7.8%yoy), and (2) fee income of RM38.7m (+8.6%yoy). The fee income primarily comprised bad debts recovered and commission income from sale of insurance related products and loyalty programme processing fees.

Financing receivables improved. Financing receivables expanded, by +3.8%yoy to RM6.9b, leading to bigger contribution from interest income in 1QFY19. The positive earnings were also reflected by improvement in operating expenses, declining by -6.4%yoy in 1QFY19. It is notable that opex portion against revenue continued to improve, which was recorded at 50.6% against revenue, compared with 58.2% in the corresponding quarter of 1QFY18. Moving forward, we expect the ratio to remain healthy driven by its initiative for leaner opex management in the long run.

Earnings forecast adjusted. Given that the results were above our expectations, we are revising upwards our estimates for FY19. This is to take into account the overall opex downtrend whereby we are assuming a reduction of -5.7%yoy.

Valuation. We maintain our BUY recommendation on Aeon Credit with an adjusted TP of RM15.40 (from RM14.29), as we rollover our valuation to FY20. We peg the group’s BVPS of RM7.00 to PBV of 2.2x. ACSM continues to ride on its value chain transformation journey. Our optimism also stemmed from the business proactivity in enhancing its business streams via the introduction of e-wallet and e-money cards, in which we opine, will improve the customers’ brand loyalty with Aeon Credit. This will set strong foundation for its revenue base, while it continues to expand product offerings to the market.

Source: MIDF Research - 29 Jun 2018