Aeon Credit Service (ACSM) posted a first nine months of financial year 2023 (9MFY23) net profit that came above expectation at 82.8% of its full year estimate, according MIDF Research. The variance was due higher than expected other operating income.
Net profit declined. Meanwhile, ACSM’s third quarter earnings (3QFY23) was lower by -19.2% year-on-year (yoy) but was better on sequential quarter basis, by +10.5% quarter-on-quarter (qoq). Higher opex and lower other operating income was the difference when compared against same quarter last year. This moderated the higher revenue and lower tax expense. As a result, the 9MFY23 earnings fell by -5.8% yoy.
On the sequential quarter basis, the improvement to earnings was due to higher revenue and lower tax expenses.
Higher OPEX on higher impairments. Pre-provisioning OPEX fell -8.4% yoy to RM136.3 million for 3QFY23 and -10.6% yoy to RM373.3 million for 9MFY23 due to prudent cost management. Personnel cost fell -6.7% yoy to RM152.0 million for 9MFY23. However, the drag came from higher impairments, where it rose +122.5% yoy to RM330.6 million for 9MFY23. This was due to higher YTD receivables movement of RM735 million which led to higher new sales impairment loss provision of RM78.1 million.
Strong revenue growth. Revenue in 3QFY23 was strong, growing by +11.0% yoy, while cumulative 9MFY23 revenue rose +3.9% yoy. This was due to interest income from vehicle and personal financing. It was a further improvement from revenue in 2QFY23 (+4.7% qoq). The research house noted that revenue improvement started in 2QFY23. The cumulative revenue thus far had been within its expectation at 74.9% of our full year estimate.
Gross financing receivables expanded. Gross financing receivables grew +10.3% yoy to RM10.6 billion. The strong receivables growth is expected given that the economy was growing better-than-expected. Besides this, strong marketing campaigns was also a factor.
Asset quality deteriorated. Non-performing loans ratio went up by +79bps yoy to 2.54%. However, it was an improvement of -37bps on sequential quarter basis due to improved collection productivity.
Earnings forecast revised upwards. Despite the better-than-expected earnings, MIDF makes no changes to its FY23 forecast as it is wary of any rise in impairments in 4QFY23 as what was observed in 4QFY22.
Valuation and recommendation. ACSM’s performance is in-line with the overall better economic performance. Hence, the research house believes that ACSM will maintain its upward earnings trajectory as it believes that next year economy will be supported by robust domestic demand.
With the recent share price weakness, there is a trading opportunity for ACSM. Hence, MIDF upgrades ACSM further to BUY (from TRADING BUY) with unchanged target price (TP) to RM15.00.
