AEONCR outlook remains stable thanks to optimising exposure and credit controls in place. Meanwhile, the group’s financing pipeline appears sound with possible boons from festivities and digitalised fronts smoothening the process. Buy with a TP of RM16.95. Against conventional banks, AEONCR commands a leading ROE of >20% with more modest dividend yields (5%). We expect sentiment for the stock to improve as it is a proxy to stronger GDP output while its Islamic digital banking licence extends new value propositions to customers.

To address possible strains in asset quality from inflationary pressures, the group looks to tighten its credit criteria for its motor segment (36% books composition, namely for mopeds) which also has a high concentration of B40 customers. The group opines that it can accelerate efforts on used vehicles financing as well as personal financing products, the latter which is able to benefit from a rising OPR environment.

FY22 saw a large dent in its collection due to year-end floods which undermined credit costs. With regards to the current predicament, the group indicated that its East Coast footprint makes up 8-9% of overall financing portfolio. With overlays of c.RM25m in place, the group is not overly concerned that a large hit from recent flood reports could cascade to severe provisions for 4QFY23.

The group recently launched its digital onboarding platform in September 2022 which enables instant conditional approval. The streamlined administrative and documentation process looks to vastly reduce processing time and could introduce efficiency gains in the future. This looks to be accompanied by an extension into personal financing end-to-end digital onboarding by January 2023.

With the reappointment of new management to lead, the group remains confident that It would be able to introduce its Islamic digital banking platform by 4QCY23. This is ahead of the imposed deadline by Bank Negara Malaysia slated to be April 2024. Recall that AEONCR only holds 45% control and is expected to incur a capital injection of up to RM90m in the entity.

Source: Rakuten Research - 23 Dec 2022