ACSM’s 1HFY14  net  profit  of  MYR84.4m  was  in  line  (52.3%  of  RHBRI; 52.7% of consensus). Financing growth traction remained strong, which boosted  its  interest  income.  However,  profit  was  offset  by  high  loans provision  and  a  slight  uptick  in  NPL  ratio.  We  keep  our  forecasts, pending  details  of  its  capital-raising  exercise.  Maintain  TRADING  BUY, given the possibility of a perpetual bond issuance due to timing risks.

- Unimpeded  growth.  We  attended  the  results  briefing  last  Friday. 1HFY14 core profit rose 40.4% y-o-y and 4.3% q-o-q respectively, driven by growth in receivables (62.1% y-o-y, 14.3% q-o-q). On interest income, Motor  Easy  Payment  (MEP)  (+37.0%  y-o-y)  and  Car  Easy  Payment (CEP)  (+518.0%  y-o-y)  remained  the  biggest  contributors,  representing 44.3% of  receivables.  General  Easy  Payment  (GEP)  growth  was  intact. Personal  financing  (PF)  income  (+78.8%  y-o-y)  was  unimpeded  by BNM’s July cooling measures, though we note that transaction volumes saw  a  marked  decrease  of  9.3%  q-o-q.  PF  approval  rates  declined,  as the  company  tightened  underwriting  standards  in  relation  to  the  debt-service ratio (DSR) requirement of 60.0%.

- Higher impairment  losses.  2QFY14  EBIT  margin  decreased  to  49.7% from  52.6%  in  1Q14,  largely  attributed  to  higher  interest  expense (+20.9% q-o-q) from increased borrowings as well as more provision for impairment  losses  (+41.5%  q-o-q).  Based  on  our  estimates,  loan  loss coverage increased to 130.5% from 125.5% in 1QFY14.

- Hitting  the  threshold.  ACSM’s  capital  adequacy  ratio  (CAR)  dropped substantially to 15.5% from 1QFY14’s 17.6%. Likewise, its debt-to-equity (D/E)  ratio  surged  to  5.67x  from  4.6x  in  1QFY14.  The  company’s anticipated  capital-raising  exercise  is  expected  to  be  announced  very soon, as its CAR is now below the regulatory threshold of 16.0%, while its  D/E  ratio  is  above  its  target  of  3.0-5.0x.  We  understand  ACSM  will raise CAR in time to prevent hiccups in its future financing growth.

- No  changes  to  forecasts.  As  there  is  no  surprise  in  the  results,  we maintain  our  forecasts,  pending  the  company’s announcement of its capital-raising exercise. Maintain TRADING BUY, with our MYR20.20 FV pegged to a 14.9x FY14F EPS, at a discount to the mother company’s 2-year P/E multiple.

Source: RHB