KEY INVESTMENT HIGHLIGHTS

• Earnings fell below expectations on higher provisions

• Revenue was stable but weak

• Gross financing remains solid

• Asset quality stable thus far

• Earnings forecast revised downwards

• Maintain NEUTRAL with unchanged TP of RM9.45

Below expectations. Aeon Credit Service (M) Bhd (ACSM) recorded a 1QFY21 net profit decline of –68.9%yoy, which was below our expectations. Net profit was 9.1% of our full year estimate.

Net profit declined due to higher impairment loss. The main contributor for the earnings decline was higher impairment loss where it increased +87.1%yoy to RM174m. Also, this was compounded by lower bad debt recovered. The higher net credit cost was due to lower receivable collection as delinquency rose in light of the movement control order (MCO).

Revenue stable. Revenue in 1QFY21 expanded +1.8%yoy. This was due to disruption in operation due to MCO and possibly from the loan moratorium.

Gross financing receivables growth remains solid. Gross financing receivables expanded +15.0%yoy to RM10.5b as at end 1QFY21. The main reason for this was lower repayments due to loan moratorium ensuring that there was no decrease in its financing book. Highest expansions were in motorcycle, car and personal financing. These grew +20.8%yoy to RM3.32b, +16.3%yoy to RM3.05b and +11.0%yoy to RM2.88b respectively.

Asset quality improved due to loan deferment. Non-performing loans ratio improved by -50bp yoy to 1.42%. This was due to a combination of lower NPL booked as customer’s delinquency status remain unchanged for those eligible for loan deferment programme and the strong financing receivables. Meanwhile, current collection ratio remains high at 98.6%.

Earnings forecast revised downwards. In light of the expected economic impact coming from Covid-19 pandemic and the MCO, we are revising downwards our forecast for FY21/FY22/FY23 by -39.4%/- 42.2%/-25.1% respectively.

Valuation and recommendation. We believe that provisions will continue to be a weigh to the ACSM’s earnings especially post loan deferment period. This will also put a dampener to revenue as well. However, asset quality will likely remain stable. All-in, we maintain our

NEUTRAL call with unchanged TP to RM9.45. We peg ACSM's FY21 BVPS of RM7.27 to PBV of 1.3x.

Source: MIDF Research - 26 Jun 2020