AEON Credit Service (M) Bhd has been downgraded to Neutral from Buy after its second-quarter FY2027 earnings missed expectations, with higher credit costs and weaker asset yields weighing on profitability.
The research house cut its target price to RM5.70 from RM6.60, implying about 10% upside alongside an estimated FY2027 dividend yield of around 5%.
AEON Credit posted 2QFY2027 net profit of RM59.3 million, down 18% year-on-year and 38% quarter-on-quarter. This brought first-half net profit to RM154.5 million, up 3% from a year earlier but representing only 38% and 39% of the research house’s and consensus full-year forecasts, respectively.
The main drag came from elevated credit costs, which rose to 5.09% in the first half, above management’s guidance of around 4%.
The research house attributed the increase to higher impairment charges and write-offs across personal financing, used car financing and credit cards.
Despite the weaker bottom line, pre-impairment operating profit remained relatively resilient, rising 7% year-on-year in the first half, supported by a similar 7% increase in topline revenue.
Gross financing receivables expanded 9% year-on-year to RM16.5 billion, exceeding management’s full-year growth target of 8%.
Growth was led by superbike financing, particularly scooter and large-bike segments, which surged 53% year-on-year, while the payment business grew 11% following new card launches.
However, new car, objective financing and SME financing remained softer.
The stronger financing growth was partly offset by an estimated 30-basis-point compression in net interest margin, reflecting lower average asset yields, while funding costs remained stable.
Operating expenses rose in line with sales, leaving the cost-to-income ratio unchanged at 37.6%.
Associate losses also remained a drag, rising 17% year-on-year and 23% quarter-on-quarter in 2QFY2027, bringing first-half associate losses to RM39 million.
AEON Credit declared an interim dividend of 13 sen per share, translating into a payout ratio of 43%.
Asset Quality Remains Under Pressure
The research house estimated that non-performing loan formation remained elevated at between 5.8% and 6.2% in the first half, compared with around 5.2% to 5.6% during the first three quarters of the previous two financial years.
Even so, stronger financing growth and higher write-offs helped contain the reported NPL ratio at 2.55%, up six basis points year-on-year but down five basis points quarter-on-quarter.
Management attributed the persistent pressure to cost-of-living challenges affecting younger and lower-income customers.
Loan-loss coverage stood at 199.4%, broadly stable from the previous quarter but below 228.1% a year earlier.
Following the weaker results, the research house cut its FY2027, FY2028 and FY2029 profit forecasts by 16%, 13% and 12%, respectively, reflecting lower asset yields and higher expected credit costs.
It said financing growth remains healthy, but the combination of elevated credit costs, weaker margins and uncertainty over asset quality warrants a more cautious stance on the stock.
