We retain our NEUTRAL call on AEON Credit with a revised TP of MYR13.40 (from MYR12.00), implying 8% downside. Its FY15 (Feb) results were broadly in line, with a key positive being the improvement in asset quality during the quarter. Looking ahead, management does not expect any major changes to the group’s risk appetite, with auto/motorcycle financing the key driver for receivables.

• Good end to the financial year. AEON Credit Service’s (AEON Credit) FY15 net profit of MYR216m (+23% YoY) was 8% ahead of our and 2% above consensus estimates, with the key variance being the change in FYE to 28 Feb from 20 Feb. This added MYR8m to its bottomline. Based on the original 20 Feb FYE, its FY15 net profit would have been MYR207m or 104% of our and 98% of consensus forecasts, ie in line with estimates. AEON Credit declared a final net DPS of 29.6 sen (4QFY14: 24 sen), bringing FY15 net DPS to 57 sen (FY14: 46.3 sen).FY15’s dividend payout ratio of 38% was similar to that of FY14.
• Results highlights. AEON Credit’s NPL ratio improved this quarter to 2.76% from 3.07% at end-3QFY15 (4QFY14: 2.14%). Together with slightly better recoveries during the quarter, 4QFY15 net impairment allowances for receivables were 14% lower QoQ at MYR45m (+25% YoY) while impairment allowances/receivables eased to 3.9% (3QFY15: 4.8%; 4QFY14: 4%). Otherwise, 4QFY15 pre-impairment profit was up 11% QoQ (+30% YoY) mainly due to the continued growth in receivables of 4% QoQ/26% YoY, led by vehicle financing.
• Briefing highlights. Management hopes asset quality can be maintained at the current levels and does not expect any significant changes to the group’s risk appetite. Auto/motor financing is still expected to be the main driver of receivables, with new car financing (both national and non-national cars) providing the next leg of growth.
• Forecasts. We raised FY16/FY17 net profit projections by 5-10% after updating to reflect the FY15 results. We also introduce our FY18Fnumbers in this report.
• Investment case. We lift our TP to MYR13.40 from MYR12.00, which takes into account the earnings revisions above and update our target FY16 P/E to 8x from 7.5x. Our target P/E is still based on 1SD below the stock’s average P/E to reflect potential asset quality concerns – although the improvement in 4Q was encouraging. Our NEUTRAL call is unchanged.