• BUY, new MYR16.60 TP from MYR16.20, 20% upside with a 3.5% FY23F (Feb) yield. We upgrade FY23F earnings and DPS by 6.6%, post Aeon Credit’s 1QFY23 results beat. Management guided that the dip in loan growth was temporary, and a normalisation in demand for financing is already evident. The stock is trading at 1.6x FY23F P/BV, near 0.5SD below the 5-year mean – valuations are compelling, given its improved fundamentals and encouraging start to the financial year.

• 1QFY23 results boosted by one-off items. The main contributor behind ACSM4’s 1QFY23 results beat was the net impairment writeback of MYR17.8m. This was mostly due to supernormal recoveries of MYR55m (vs the average of <MYR30m), coupled with a reversal of MYR44m in overlays. This points towards optimism from management with regards to its future impairments, as collection ratios are showing signs of recovery from the slump in 4QFY22. On top of this, a one-off writeback of bonus payments also caused personnel costs to decline by 22.2% YoY (QoQ: -32.5%), leading to an overall improvement in operating expenses (-1.6% YoY, -44.7% QoQ). While 1QFY23 numbers were indeed boosted by these one-off items, we believe a recovery in its fundamental operations should help the company book a strong performance in FY23F.

• Loan growth recovery to support strong collection productivity. 1QFY23’s loan growth of 1.6% currently lags behind management’s FY23F target of 10%. The subdued growth was due to the low demand for financing, on the back of the special Employees Provident Fund withdrawals, as well as the auto industry’s supply chain bottlenecks dampening vehicle financing demand. We believe these effects will subside come the next quarter, given that the supply chain issues have already started to ease, and management has noticed a pick-up in financing demand. Aided by the recovery in collection productivity, this should lead to an improvement in the company’s topline.

• Risks from inflation remain. Most of ACSM’s customers are from the B40 and M40 segments – as such, they are likely more exposed to some sort of inflationary risk. However, the existing accumulated overlays of MYR74m should provide the company with some buffer until the severity of the risks can be determined.

• We lift FY23F earnings by 6.6% to account for its stellar 1QFY23 numbers, and keep FY24 forecasts flat to reflect the concerns over inflation. Our TP rises to MYR16.60 (from MYR16.20), based on a GGM-derived fair value P/BV of 1.8x on FY23F book value. Our TP also includes a 4% premium, based on Aeon Credit’s ESG score of 3.2, determined as per our in-house proprietary methodology.

Source: RHB Research - 13 Jul 2022