• Stay NEUTRAL, with new MYR16.20 TP from MYR16.10, 9% upside. Post results briefing, we are reassured on Aeon Credit Service’s recovery prospects after the temporary blip in 4QFY22 (Feb), led by external headwinds limiting collection activities. Management indicated that business operations have since normalised, and reversals of management overlays are possible. At 1.7x P/BV against a ROE of 17.3%, we think valuation is fair with recovery prospects well priced in. We advocate investors to nibble on share price weakness.

• Temporary blip in 4QFY22. External headwinds, including the flood in Dec 2021 and heightened COVID-19 cases in the early part of 2022 have led to weaker collection performance, and in turn, recorded a higher net impairment loss of MYR116m in 4QFY22. Management highlighted that specific provision within the ECL model of MYR24.2m – only c.MYR1m was provisions for existing delinquent receivables, with the remaining c.MYR23m being general provisions for new sales. As for the management overlays of MYR42.1m, it was mainly attributed to lower collection productivity rather than asset quality. As at end Feb 2022, cumulative management overlays stood at MYR118m, and we can potentially see reversals as business activities normalise.

• Underlying NIM remains stable. 4QFY22 NIM declined sharply to 9.74% from 10.67% in 3QFY22. We understand that this was due to a one-off adjustment made in 4QFY22 to comply with accounting standards, and that the underlying 4QFY22 NIM is higher than 3QFY22. Moving forward, management expects NIM to normalise at the 10-11% level, supported by growth of high margin products and stable cost of funds.

• Operations have started to normalise in March; recovery on track. Management indicated that business operations have normalised after the temporary blip in 4QFY22. March collection activities have since returned to c.90% of pre-Dec 2021 levels. Additionally, supply chain disruptions are gradually easing, which should provide grounds for growth in motor and auto financing. Overall, financing demand and collection performance should gain pace going forward as business sentiment improves, aided by the lifting of movement restrictions/border reopenings.

• We lift FY23F-25F earnings by 4%, accounting for higher NIM and stronger loan growth expectations. We also roll forward our base year valuation to FY23F, and update our GGM parameters. As a result, our TP is lifted to MYR16.20 from MYR16.10, based on a GGM-derived intrinsic value of MYR15.58 and 4% premium for its 3.2 ESG score, based on our in-house methodology. This values ACSM at 1.76x P/BV against a ROE of 17.3%.

Source: RHB Research - 7 Apr 2022