KEY INVESTMENT HIGHLIGHTS (from RM9.45)

• Earnings slightly below our expectations

• Lower earnings on higher provisions

• Revenue declined but stable

• Gross financing remains solid

• Asset quality deteriorated

• Earnings forecast maintained

• Maintain NEUTRAL with revised TP of RM9.90

A shade below expectations. Aeon Credit Service (M) Bhd (ACSM) recorded a 1HFY21 net profit that was a shade below our full year forecast at 44.6%. However, it was well below consensuses at 32.9%.

Lower net profit due to higher impairment loss. ACSM 1HFY21 earnings declined -41.6%yoy as impairment loss came in higher by +15.5%yoy to RM286.4m. This was due to lower receivable collection as delinquency rose in light of the movement control order (MCO) in 1QFY21 and preemptive provision of RM134m in anticipation of the effects of Covid-19.

Lower revenue but stable. Revenue in 1HFY21 declined -3.7%yoy. This was mainly due to Day-1 modification loss of RM28.4m related to AEON Relief Programme and lower fee income. However, we view revenue was stable.

Solid gross financing receivables growth. Gross financing receivables expanded +6.9%yoy to RM10.3b as at end 2QFY21. We believe that one of the reasons for this was lower repayments due to loan moratorium ensuring that there was no decrease in its financing book. In terms of the quarterly trend, gross receivables contracted - 2.5%qoq highlighting possible slower demand.

Asset quality deteriorated. Non-performing loans ratio increased by +53bp qoq to 1.95%. However, it is -5bp yoy better from 1HFY20. However, based on our observation, the NPL ratio was still stable. Nevertheless, we expect this to spike up come end of loan moratorium. Meanwhile, current collection ratio also came down but remains high in our opinion at 95.5%.

Earnings forecast maintained. Given that its earnings were only slightly below our expectation, we are maintaining our forecast for now.

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. Furthermore, lower current collection ratio suggests that delinquencies might be trickling in. However, we believe that asset quality will likely remain stable. All-in, we maintain our NEUTRAL call with revised TP of RM9.90 (from RM9.45) as we rollover our valuation to FY22. We peg our forecast of ACSM's FY22 BVPS of RM7.60 to PBV of 1.3x.

Source: MIDF Research - 30 Sept 2020