AEON Credit Service (M) Bhd’s first-half FY2027 earnings came in below Kenanga Research’s expectations as elevated write-offs and higher impairment charges weighed on profitability, prompting the research house to cut its target price to RM5.60.
AEON Credit recorded 1HFY2027 net earnings of RM154.5 million, below Kenanga’s previous full-year forecast of RM399 million. The company declared an interim dividend of 13 sen per share, unchanged from the corresponding period last year.
Kenanga nevertheless maintained its Outperform call on the stock, citing healthy financing growth and expectations that credit quality could improve in the second half.
The research house said AEON Credit’s cost-to-income ratio remained a bright spot at 27%, comfortably below management’s 30% target, while total income increased 6.2% year-on-year in the second quarter.
Asset quality also remained relatively stable. The non-performing loan ratio eased marginally to 2.55% in 2QFY2027 from around 2.6% in the preceding quarter, while the loan-loss coverage ratio improved slightly to 199%.
However, high write-offs pushed net credit costs to about 5.0% in the second quarter, with pressure concentrated in the Klang Valley and southern region, particularly in used-car and personal financing.
Kenanga said AEON Credit is stepping up early reminder and collection measures to prevent loans from slipping into non-performing status.
Operationally, financing momentum remained intact, with new loan transactions rising 8.4% year-on-year in 2QFY2027.
Outstanding receivables increased 9.1% year-on-year, led by an 11.3% expansion in the payment business.
Kenanga expects financing growth of around 8% for the full year, in line with management’s guidance, as the group takes a more selective approach to credit growth and continues to focus on M40 customers.
The research house expects AEON Credit’s return on equity to reach 11.3% in FY2027, below management’s 12% guidance, after first-half ROE stood at 10%.
Kenanga said management expects write-offs to improve in the second half, supported by tighter management of pre-NPL delinquencies and greater use of artificial intelligence in tele-collections.
AI currently assists in about one-third of tele-collection work, reducing the need for a corresponding increase in manpower as collection activity expands.
There were also questions on strategy changes given new leadership in AEON Bank. Given that indication is much status quo, the house does not see a need to second guess the pace of narrowing losses from AEON Bank, which had improved from the previous year and remains broadly on track to meet its RM75m narrowing loss guidance. There continues to be cross-selling with the AEON ecosystem.
Kenanga raised its FY2027 net credit cost assumption to 4.85% from 4.5%, saying its earlier assumption appeared too low against the first-half run rate.
It also factored in its house view of a 25-basis-point OPR increase in 2027, which is expected to raise funding costs and weigh on FY2028 earnings.
Despite the forecast cuts, Kenanga expects AEON Credit to pay 30 sen in dividends for FY2027, broadly comparable with 29 sen last year excluding the special dividend.
The research house lowered its target price to RM5.60, based on a reduced Gordon Growth Model-derived price-to-book valuation of 0.91 times, reflecting a lower assumed sustainable ROE.
Key risks include weaker-than-expected financing growth, higher impairment losses, lower write-backs and any extension of repayment moratoriums.
