KEY INVESTMENT HIGHLIGHTS 

• Earnings slightly below our expectations

• Lower earnings on higher provisions

• Revenue improving

• Gross financing remains stable

• Asset quality deteriorated

• Earnings forecast tweaked downwards

• Maintain NEUTRAL with revised TP of RM12.90

A shade below expectations. Aeon Credit Service (M) Bhd (ACSM) recorded a 9MFY21 net profit that was a shade below our full year forecast at 68.6%.

Lower net profit due to higher impairment loss. ACSM 9MFY21 earnings declined -41.0%yoy as impairment loss came in higher by +22.2%yoy to RM443.3m. This was due to higher impairment on delinquent accounts and management overlay to account for the current situation surrounding the Covid-19 pandemic. Preemptive provision came in at RM77.6m.

Revenue improving. Revenue in 9MFY21 declined -2.5%yoy, mainly due to Day-1 modification loss of RM28.4m related to AEON Relief Programme and lower fee income. However, we noted that revenue had improved in 3QFY21 which expanded by +10.3%qoq. This was due to higher income quarter-on-quarter from motorcycle and personal financing.

Gross financing receivables stable. Gross financing receivables expanded +1.9%yoy as at end 3QFY21. We believe this was due to the challenging environment which is affecting receivables demand. In terms of the quarterly trend, gross receivables was stable.

Asset quality deteriorated. Non-performing loans ratio increased by +93bp qoq to 2.88%. This was due to temporary change in written off criteria. We also believe that this could be due to higher delinquencies. Nevertheless, we had expected this to spike up come end of loan moratorium. Meanwhile, current collection ratio remains high in our opinion at 96.9%.

Earnings forecast maintained. We are tweaking our FY21 downwards by -5%.

Valuation and recommendation. We believe that provisions will continue to be a weigh to the ACSM’s earnings especially post loan deferment period. However, we observed that there is improvement in revenue which will moderate this impact. Our concern presently is on asset quality but we believe that it will likely remain stable. All-in, we maintain our NEUTRAL call with revised TP of RM12.90 (from RM9.90) as peg our forecast of ACSM's FY22 BVPS of RM7.60 to higher PBV of 1.7x. We are according a higher PBV given that we believe the situation is improving especially with the availability of the vaccine.

Source: MIDF Research - 22 Dec 2020