Aeon Credit Service (M) Bhd’s (Aeon Credit) counter growth and asset quality are promising in RHB Investment Bank’s (RHB IB) view.
The latter said after attending Aeon Credit’s 3QFY24 results briefing, it solidifies the above conclusion.
In its Malaysia Company Update today (Dec 26), RHB IB said the management guided for its share of start-up losses from the digital bank operations to reach RM60 million per annum.
“This would lead to negative earnings growth in FY25F, though the potential growth avenues that these open up for the parent look exciting,” it said.
Therefore, it maintains its BUY call and RM7 TP, 25% upside and 4% FY25F (Feb) yield.
However, it cuts FY24F net profit by 4% to factor in higher credit costs and lowers FY25F and FY26F net profit by RM30 million each on higher digital bank start-up losses.
“Our TP is maintained at RM7 after rolling forward our valuation year to CY24, and includes an unchanged 2% ESG premium.
“Aeon Credit 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 the group to book 14% earnings growth in FY25F, driven by robust receivables growth and lower credit costs,” RHB IB added.
The research house said the Aeon Credit’s receivables added 12% year-on-year (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 to 15% YoY moving forward – a positive turn from the 10% target for FY24,” it said.
Aside from that, RHB IB said the group’s 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 not past-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 to 4% moving forward,” it said.
Post-briefing, the research house noted that ACS Digital Bhd, which is a joint venture between Aeon Credit Service and Aeon Financial Service Co Ltd, has completed its operational readiness tests.
It added, the digital Islamic bank is now awaiting the operating license from the central bank, which it expects to receive in January 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 Aeon Credit’s share of start-up losses to be RM50 to 60 million per annum (around RM100 to RM200 million in total).
“Previously, we had assumed the group’s share to be RM30 million per annum (RM60 milion total),” it added.
