• Maintain BUY and MYR7 TP, 25% upside and 4% FY25F (Feb) yield. Aeon Credit Service’s 3QFY24 results briefing further solidifies our view that the counter’s growth and asset quality prospects are promising. Management guided for its share of start-up losses from the digital bank operations to reach MYR60m pa. This would lead to negative earnings growth in FY25F, though the potential growth avenues that these open up for the parent look exciting.

• Upside to receivables growth target. ACSM’s receivables added 12% YoY in 3QFY24, ahead of the 10% target for the year. The group’s marketing and digitalisation initiatives seem to be bearing fruit, as it is receiving more financing applications among higher-quality customers. It has also launched its digital onboarding platform for personal financing facilities, which could further push growth in that segment. Management sees scope for its receivables to grow at 10-15% YoY moving forward – a positive turn from the c.10% target for FY24.

• Credit costs to moderate. The large write-offs in 3QFY24 were due to legacy accounts from the moped and personal financing segments that were past due by over four months. These segments have since had credit requirements tightened. Encouragingly, collection trends are stable for notpast-due accounts, and improving for accounts that are less than three months past due. With the continuous onboarding of higher-quality customers, we believe credit costs can stabilise to the pre-pandemic average of 3-4% moving forward.

• Digital bank updates. ACS Digital Bhd has completed its operational readiness tests, and is now awaiting the operating license from the central bank, which it expects to receive in Jan 2024. The bank will then launch its services for staff use first, before opening up to the public within two months. Acquisition strategies remain the same – the bank will focus on existing customers within the AEON ecosystem first. During the analyst briefing, we were guided for ACSM’s share of start-up losses to be MYR50-60m pa (MYR100-120m total). Previously, we had assumed ACSM’s share to be MYR30m pa (MYR60m total).

• We cut FY24F net profit by 4% to factor in higher credit costs. We also lower FY25F and FY26F net profit by MYR30m each on higher digital bank start-up losses. Our TP is maintained at MYR7 after rolling forward our valuation year to CY24, and includes an unchanged 2% ESG premium.

• Stay BUY. ACSM remains a sector Top Pick for its strong growth prospects and undemanding valuation – its current P/BV of 1.0x vs 14% ROE (including digital bank losses) is attractive, in our view. Notwithstanding the digital bank start-up losses, we expect ACSM to book 14% earnings growth in FY25F, driven by robust receivables growth and lower credit costs.

Source: RHB Securities Research - 26 Dec 2023