Aeon Credit Services Bhd’s (Aeon Credit) 9MFY24 results were in line with Research Investment Bank’s (RHB IB) expectation with strong income growth and better non-performing loan (NPL ratio), said the research house.
“While higher bad debt write-off in 3QFY24 subdued the bottomline performance, strong income growth and the subsequent improvement in the NPL ratio are positive takeaways from the set,” it said today in its Malaysia Results Review (Dec 22).
Thus, the research house maintains its BUY call, its forecasts and RM7 TP, 24% upside and 4% FY25F (Feb) yield.
It added includes a 2% ESG premium pending its analyst briefing later today.
RHB IB said the counter’s current P/BV of 1.0x is a far cry from its peers’ 1.2-2.6x, which is unjustified in the research house’s view, given its strong ROE generation of more than 15% and bright growth prospects among higher quality customers.
“Aeon Credit is a Top Pick within the non-banking financial institution or NBFI sector, and could potentially see laggard share price improvements in CY24, especially if startup losses from its digital banking venture turn out lower than expected.
“Our forecasts bake in RM30 million in startup losses for FY25F and FY26F,” it said.
It said the group’s 9MFY24 net profit of RM300.1 million, down by 5% year-on-year (YoY), came in at 73% and 72% of our and Street full-year estimates – in line, pending a seasonally strong 4Q.
“Total operating income surged 18% YoY on robust receivables growth, up by 12%, but was met with greater credit costs of 3.7% (9MFY23: 2.5%) – recall that there was a net write-back in 1QFY23.
“On a quarterly basis, pre-impairment operating profit (PIOP) increased 6% quarter-on-quarter (QoQ), on income growth of 3% and lower opex by 3% (YoY: +11%).
“The credit costs jumped more than two ppts sequentially to 4.7% in 3QFY24 due to higher write-offs. 9MFY24 ROE of 16 is tracking ahead of the 15% guidance,” it said.
The research house said the group’s YoY growth of 12%, QOQ up by 3% is above the target level of 10% for the year.
“The growth predominantly came from objective financing and personal financing, both more than 20% YoY, while growth was deliberately slower for motorcycle financing, more than 4% YoY, due to its weaker asset quality tendencies.
“We foresee the group surpassing its 10% target for the full year, particularly as its strategic marketing campaigns have generated decent success at garnering financing applications among higher credit-score customers.
“Coupled with its digital credit assessment and onboarding initiatives, disbursements could accelerate and keep the receivables growth momentum going for longer.
It also said that the sequentially higher credit costs of 4.7% in 3QFY24, compared to 2.6% in 2Q was largely due to a 12% QoQ increase in write-offs of legacy bad debts.
“As a result, the NPL ratio dropped further to 2.7%, compared to 2Q: 3%, and now falls below the guidance of 3 to 4%.
“Consequently, LLC improved to 233% compared to 219% in 2Q and remains within the group’s 200 to 250% comfort range.
It added Aeon Credit focuses on higher credit score customers appears to be bearing fruit, and credit costs could stabilise to the pre-pandemic average of 3 to 4% in the near future.
