• D/G NEUTRAL from Buy, unchanged MYR16.10 TP, 5% upside and 3% yield. FY22 (Feb) results were below our and Street’s forecasts on higher-than-expected provisions. We continue to see financing demand picking up going forward as business sentiment improves, aided by the lifting of movement restrictions/border reopenings. We downgrade our call following stellar c.12% YTD share price performances, pricing in the recovery. This report marks the coverage transfer to Eddy Do Wey Qing.

• FY22 below expectations. 4QFY22 (Feb) headline PAT tapered off by a sharp 79% YoY or 77% QoQ to MYR23.4m, bringing FY22 earnings to MYR365m (+56% YoY). This missed our and Street’s estimates at 94% and 89%. A final dividend of 15 sen and special dividend of 5 sen were declared, bringing FY22 total dividends to 48.5 sen (DPR: 33.9%).

• 4QFY22 earnings drivers. PIOP improved 3.6% QoQ, as the 5% decline in operating income was offset by a lower overhead expenses (-14% QoQ). Non-II normalised to MYR51.5m (+8% QoQ) while NII continues to trend lower on disruptions in operating activities due to flooding instances and emergence in COVID-19 variants – with sequential declines widening to 6.3% (3QFY22’s -3.6%). Following the decline in staff productivity, advertising & promotional expenses shrunk 52% QoQ. Other expenses declined 30% QoQ, offset by a 20% higher personnel expenses from bonus provisions. Despite that, the main drag in earnings were the MYR116m net impairment charges driven by higher expected credit loss or ECL provisions of MYR66m (MYR24m on higher existing delinquent receivable movement and MYR42m management overlays to account for lower collection productivity) vs 3QFY22’s writeback of MYR48m.

• Business momentum picking up pace... New sales rose 23.1% QoQ to MYR1,463m. Gross receivables grew 2.6% QoQ, marking its recovery after six consecutive quarters of decline. For FY23, Aeon Credit Service targets loans growth of >10% while keeping CIR at <60% to support a >15% ROE target (FY22: 19.2%) – a rather conservative aim, in our view.

• …but signs of weakness in asset quality. Gross NPL ratio widened to 2.66% in 4QFY22 (2QFY22: 1.75%), attributable to lower collection activities. LLC declined to 289% (3QFY22: 410%) and, along with receivables collection ratios, were at their lowest since FY18. Despite that, management expects normalisation – in line with the recovery in disposable income and improved market sentiment.

• Our FY23F-24F earnings are adjusted by 1-3% after imputing the latest financials. Despite that, we keep our key assumptions unchanged, pending the 10am results briefing. Our MYR16.10 TP is based on a GGM- derived intrinsic value of MYR15.40 and 4% premium for its 3.2 ESG score, based on our in-house methodology.

Source: RHB Research - 6 Apr 2022