The long-term Return on Equity (ROE) of Aeon Credit Service (M) Berhad (Aeon Credit) is still promising owing to the maturation of AEON Living Zone and digital banking, though the company missed market expectation in the latest financial period due to higher credit cost and loss incurred by Aeon Bank.
The net profit for the six-month period ended 31 August, 2024 (1HFY2024/25) recorded RM177.6m, marking a decrease of 19% year-on-year, made up just 42% of analysts’ full-year forecast and 41% of consensus full-year estimate due to higher-than-expected impairment in 2QFY2024/25, as Non-performing Loan (NPL) ratio narrowed.
According to Kenanga Research, the credit service provider’s long-term ROEs (~15%) may see further momentum given the maturation of its AEON Living Zone ecosystem and digital banking efforts. A results briefing will be held today (27 September) where more details on the provisions are expected.
With regards to growth strategies, wider engagement from AEON Living Zone offers cross selling opportunities on its captive customer base, and at the same time provides a smooth introduction of AEON Bank to the market. However, these channels are expected to carry heavier customer acquisition costs and hence will only likely contribute significantly to earnings in the medium-term once better scale is reached.
In summary, analysts maintain their OUTPERFORM call and a target price of RM8.35 for Aeon Credit.
As at 1:13am Friday, Aeon Credit’s stock traded at RM7.11. (Stock updates from www.klsescreener.com)
