ACSM’s conservative guidance on personal financing (PF) is in line with our earlier decision to trim its FY15 EPS growth to 21%. Management is more  concerned  about  further  tightening  on  its  larger  businesses  of motor  and  easy  payment  financing.  We  roll  over  our  FV  to  MYR20.20 (ex-rights: MYR18.80) and upgrade the stock to a TRADING BUY, as its potential capital-raising plans will enable it to sustain future growth.    

- PF  may  dip.  We  highlighted  previously  that  Aeon  Credit  (ACSM)'s maximum  five-year  tenure  for  PF  is  more  conservative  than  Bank Negara  (BNM)'s  recently  imposed  10-year  cap.  While  the  group’s approval  parameters  are  as  conservative  as  the  commercial  banks’,  it acknowledges that PF growth may ease due to hiccups in computing its debt-service ratio (DSR). This is consistent with our earlier move to trim  its  PF  loan  growth.  Overall,  the  downside  in  PF  growth  may  be  less severe than expected, as we  believe ACSM may consider extending its current maximum tenure closer to 10 years to be more competitive.  

- Will  BNM  measures  extend  to  GEP  and  MEP?  Management  noted that  if  BNM  extends  its  tightening  measures  to  consumer  durables financing  (GEP)  and  motor  financing  (MEP  and  CEP),  this  may  mean greater  regulatory  risks  for  the  Company.  Economists  are  widely anticipating  BNM  to  impose  prudent  measures  to  curb  household  debt. Meanwhile, credit risks, competition and the lack of a diversified revenue stream for non-interest income are other challenges facing ACSM. 

- TRADING  BUY.  Our  ~20%  earnings  growth  estimate  factors  in  the regulatory  risks  and  slight  compression  in  net  interest  margin  (NIM),  as the group’s MEP  yields  are  lower  than  its  GEP  yields.  Having  a  bigger portion  of  MEPs  in  its  business  mix  will  lead  to  thinner  NIM.  Its  1Q,  a typically  weaker  quarter,  has  met  25%  of  our  FY14F  numbers,  but  we may  lower  our  estimates  if  BNM  imposes  more  measures  on  other segments of household financing. We roll over our valuation to FY15 and raise  our  FV  from  MYR15.60  to  MYR20.20,  pegged  to  a  higher  15x FY15F EPS (vs 14x previously), which is a discount to that for its parent company,  AEON Financial Services (Not Rated, 8570: JP)’s  two-year P/E  band  of  22x.  Our  ex-rights  FV  is  MYR18.80,  based  on  a  1-for-9 rights issue scenario and applying a 20% discount.

Source: RHB