• Maintain BUY and MYR8.80 TP, 20% upside with c.3% FY25F (Feb) yield. AEON Credit Service’s 1HFY25 results missed estimates due to sharper- than-expected credit costs, but we were surprised by a dividend payout ratio expansion to 41% – the highest in over two years. Despite the earnings miss, the group remains on track to achieving its target ROE of c.13%, inclusive of digital bank losses. We remain upbeat on the counter, due to its multiple growth engines and attractive valuation.

• Results review. 2QFY25 net profit of MYR71.2m (-38% YoY, -33% QoQ) brought the 1HFY25 total to MYR177.6m (-17% YoY) – this formed 43% and 41% of our and consensus full-year estimates. The key deviation against our numbers came from a sharper-than-expected credit cost of 4.4% in 2QFY25 (1QFY25: 3.2%, 2QFY24: 2.6%). Otherwise, all items remained in line, with total operating income up 14% YoY in 1HFY25 on strong NII (+15%) and non- II (+6%), while opex crept up further by 20%, due to greater personnel and marketing spend. The group also recorded associate losses of MYR18.7m in 2QFY25, bringing the 1HFY25 sum to MYR30.3m, in line with management’s MYR60-70m guidance. Positively, ACSM declared an interim DPS of 14.25 sen (same quantum as 1HFY24, adjusted for 1-for-1 bonus issue), implying that its dividend payout ratio has risen to 41% (1HFY24: 34%).

• Financing receivables still growing strong. The group’s gross financing receivables stood at MYR13.2bn as at end-Aug 2024, up 14% YoY and 4% QoQ. Growth was driven by all segments, especially personal financing (+19% YoY, +5% QoQ) and automobile financing (+21% YoY, +6% QoQ), whereas moped financing grew by a softer clip of 7% YoY (QoQ: +3%). The receivables YTD annualised growth rate of 16% is currently tracking ahead of management’s 10% target for the year, which was left unchanged. We think this target leans towards prudence, and will likely be surpassed – especially given the revision to civil servants’ salaries in Dec 2024.

• Slight hiccup in credit costs not a major concern. Despite the spike in net credit costs in 2QFY25, absolute NPL was flat QoQ (YoY: -9%). As such, its NPL ratio slipped by 0.1ppts QoQ to 2.4% (2QFY24: 3.0%). We gather that write-offs were stable QoQ, and that the sharp rise was attributable to BAU provisions following a refresh of the ECL model. We are also encouraged by the rise in the LLC ratio to 229% from 222% in the previous quarter, which provides the group with an even bigger buffer against any potential deterioration in asset quality.

• We make no changes to our forecasts pending the analysts’ briefing later today. Our TP stays at MYR8.80, and includes an unchanged 2% ESG premium.

Source: RHB Research - 27 Sep 2024