• Keep BUY and GGM-derived MYR15.20 TP, 21% upside and c.4% FY24F yield. Aeon Credit Service recorded 9MFY23 (Feb) net profit of MYR317m, which beat both our and Street’s forecasts. Asset quality demonstrated some sequential improvements, with better collection productivity and provision reversals as key highlights. We make no changes to our earnings and TP, pending the analyst briefing later today.

• 9MFY23 results review. ACSM’s 9MFY23 net profit of MYR317.3m (-6% YoY) came in at 84% of our full-year estimate. Net interest income grew a small 3% YoY, while non-interest income added 24% YoY on the back of stronger contributions from all revenue segments other than SME financing. Prudent cost controls continued to bear fruit as operating expenses declined 11% YoY, leading to CIR of 38% (9MFY22: 45%). Credit costs of 252bps (9MFY22: 42bps) were up mainly on higher write-offs along with provisions for new receivables, in tandem with strong receivables growth.

• Financing growth tracking guidance. ACSM’s gross receivables grew 10% YoY (QoQ: +2%), with particular strength seen in the motorcycle financing (+11% YoY, +1% QoQ) and personal financing (+18% YoY, +4% QoQ) segments. YTD, receivables have grown by 7.5%, tracking management’s full-year guidance of 10%. We see some downside risk to the figure due to the company tightening its vehicle financing criteria, but deem it to be worthwhile as a measure to protect asset quality.

• QoQ improvement in asset quality. 3QFY23 impairment losses of MYR143m (-4% QoQ, quadrupled YoY) consisted of MYR178m in write- offs of delinquent accounts, which were offset by a reversal of expected credit loss (ECL) provisions of MYR35m. Collection ratios appear to show signs of improvement, which should translate to better collection and recovery productivity moving forward. With the write-off of delinquent accounts, the NPL ratio eased to 2.5% from 2.9% in the previous quarter.

• Outlook. 9MFY23 new sales of MYR4.6bn (+41% YoY) are an indication of continued momentum in interest income growth moving forward. At the same time, the tightening of ACSM’s financing criteria for vehicle financing should also be a positive for its asset quality, particularly as motorcycle financing contributed to most of the recent spike in credit costs. On top of well-controlled operating expenses and continued digitalisation efforts, we believe ACSM can continue to record decent mid-to-high single-digit earnings delivery between FY23F-FY25F.

• Forecasts and TP. We make no changes to our forecasts pending the analyst briefing today, but see upside risk due to the results beat. Our TP is maintained at MYR15.20, and includes a 4% ESG premium in line with our in-house methodology.

Source: RHB Research - 22 Dec 2022