• 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.

Source: RHB Research - 30 Sep 2022