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Keep BUY with new MYR15.70 TP from MYR16.60, 16% upside, and c.4% yield. AEON Credit Service recorded half-time net profit of MYR234m, which came in at 62% of our full-year estimates. While asset quality may be beginning to show signs of stress, we take comfort in the strong loan growth and effective cost controls. The stock’s undemanding 1.2x P/BV multiple provides an attractive entry point, in our view.
1HFY23 results a beat. 1HFY23 net profit of MYR233.7m formed 62% of our estimates and 61% of consensus’, largely due to the strong 1Q numbers. During the half, net interest income slipped 2.2% YoY, but growth in non-interest income (+34% YoY) and cuts in overheads (-12% YoY) led to a PIOP of MYR404.2m, up 13% YoY. However, loan loss provisions saw a 126% increase YoY, leading to net profit that was flat YoY. Annualised ROAE stood at 22.7% (1HFY22: 27.3%).
2QFY23 results review. Net interest income increased 2% YoY (QoQ: +2%), owing mainly to lower funding cost (-7% YoY, +2% QoQ) after the company pared down on its borrowings. Non-interest income rebounded 84% YoY (QoQ: +3%) on higher fee income from the Personal and Motorcycle Financing segments. At the same time, cost controls led to lower opex (-12% YoY, -1% QoQ), and consequently, an improved CIR of 36.4% (against 45.2% in 2QFY22). However, the bottomline was again brought down by hefty impairment allowances of MYR106m, leading to a quarterly net profit of MYR70.6m (flat YoY, -57% QoQ).
Signs of stress on asset quality. Evidently, 2Q and 1H results were both dampened by increased impairment allowances. On top of higher delinquencies, management attributes this to higher-than-expected write- offs, and additional overlays of MYR11.1m set aside. We also understand that system disruptions led to lower staff productivity, which resulted in lower-than-expected recoveries. At end August, the NPL ratio stood at 2.91%, vis-à-vis 2.24% in the previous year.
Momentum in financing demand. ACSM’s end-2QFY23 gross receivables of MYR10.4bn were up 8% YoY (QoQ: +4%). Key YoY drivers were Personal (+12%) and Vehicle (+6%) Financing, which were offset slightly by lower credit card outstanding amounts (-5%). YTD, loans growth stands at +5.3%, tracking management’s full-year guidance of 10%. With the B40/lower-M40 segments likely to be beneficiaries of Budget 2023, we believe the strong business momentum can be sustained, if not improved.
Our TP is lowered after updating our GGM inputs, and includes a 4% ESG premium based on our in-house proprietary methodology. We keep our forecasts unchanged, pending the analysts’ briefing today. At 1.2x P/BV, we believe valuations are undemanding, and reiterate our BUY call on the counter.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....