INVESTMENT HIGHLIGHTS

• Earnings of RM267.0 above our expectation

• Largely due to growth in sales and fee income

• Higher gross financing receivables

• Maintain earnings forecast

• Maintain NEUTRAL with a positive bias and TP of RM15.40

Above our expectation. Aeon Credit recorded 9MFY19 net profit which was +23.0%yoy higher to RM267.0m. Accordingly, this translated to 83.9% of our estimates. However, it was within the expectation of consensus estimates of 73.6%.

Strong sales in 3QFY19 revenue, translated to +24.0%yoy higher income. The increase in 3QFY19’s net profit was mainly attributable to growth in (1) interest income of RM300.2 (+8.0%yoy), (2) fee income of RM48.3m (+40.0%yoy). Notably, the fee income growth was mainly driven by the strong momentum in total transaction and financing which grew by +49.5%yoy to RM1.49b in 3QFY19 and cumulatively +26.4%yoy to RM3.89b in 9MFY19. We noted that the growth in revenue and net profit in this current quarter was almost doubled of that in the previous quarter. This came as a positive surprise as the demand had continued unabated despite the ending of the GST tax holiday and reintroduction of SST in the quarter.

Gross financing receivables expanded. It increased by +15.41%yoy to RM8.3b, which led to the growth in interest income. Non-performing loans ratio was also at its lowest in two years at 2.05% as at 30 November 2018, indicating a healthy financing portfolio. The positive earnings were also reflected by higher operating income on a cumulative basis. Furthermore, the opex portion against revenue ratio stood at 55.6%, compared with 60.9% in the corresponding quarter of 2QFY19 as driven by higher revenue recorded and its lean cost structure.

Unchanged earnings forecast. We maintain our earnings forecast for now pending more details from an analyst briefing to be held today.

Valuation. We are positive on the outlook on the group’s business, with continuous sales and earnings growth in 9MFY19. The demand was unabated despite the end of tax holiday period, indicating strong domestic consumption especially in retail segment, namely, personal financing, credit card financing and motor financing . As of now, we are maintaining NEUTRAL with a positive bias and TP of RM15.40. We will revisit the stock after the analyst briefing today to see if demand is expected to be maintained or any other re-rating catalyst.

Source: MIDF Research - 21 Dec 2018