Business growth resumes for AEON Credit on recovery

The firm is keen to resume growth of its motorcycle, personal financing and objective financing business


AEON Credit Service Bhd’s credit cost is expected to be lower in financial year 2022 (FY22) as business growth resumes, underpinned by the recovery in the economic conditions, according to RHB Investment Bank Bhd (RHBInvest).

“We believe the 374 basis-point (bp) credit cost in FY21 should capture the worst impact from the pandemic and lockdowns. As such, FY22F credit cost should ease, albeit remaining somewhat elevated.

“We learned that there will unlikely be further overlays, as management deems the current buffer at RM80 million sufficient,” it said in a recent note.

RHBInvest noted that AEON Credit is keen to resume growth of its motorcycle, personal financing and objective financing business being the main focused segments.

It maintained its ‘Buy’ call on AEON Credit with a new target price (TP) of RM14.50 from RM13.30, 17% upside with 3% yield.

“AEON Credit’s FY21 results are significantly ahead of our and consensus estimates. A 20 sen dividend per share was proposed. We expect its earnings to rebound as the economy recovers.

“We raised our FY22-FY23 forecast earnings by 3%-5%, while our TP implies 1.85 times FY22F price by volume. We also opine that its recovery prospects have yet to be fully priced in, given its still lower than pre-pandemic valuation,” it said.

AEON Credit’s full-year results significantly beat the investment bank and consensus estimates by 146% and 126% respectively, despite profit after tax (PAT) dwindling 18% year-on-year (YoY) mainly from the lower than expected credit cost of 374bps versus RHBInvest’s forecast at 460bps.

Its PAT rebounded 170% quarter-on-quarter (QoQ) or 29% YoY, while profit attributable to shareholders also jumped 160% QoQ or 36% YoY.

Pre-provision operating profit, however, was 2% QoQ lower, as operating expenditure grew 10% QoQ albeit still 7% YoY lower.

AEON Credit’s cost-to-income ratio was higher at 45.9% during the quarter from 43.2% in the third quarter of 2021 (3Q21), while net interest income recovered 4% QoQ on higher net interest margin, partly due to unwinding of modification losses.

RHBInvest noted that the biggest surprise was from the significantly lower credit cost of 93bps versus 3Q21’s 481bps and first nine months of 2021’s 465bps mainly helped by various cash handouts by the government and AEON Credit being more aggressive with its collection efforts regarding default borrowers.

The finance company’s gross receivables, however, shrank 1.4% QoQ or 3% YoY, with motorcycle financing being the only exception with an increase of 5% YoY.

“We believe the segmental strength was driven by the higher number of delivery riders. Non- performing loan trended lower to 2.46% from 2.88% a quarter ago, due to more aggressive recovery efforts by the lender,” RHBInvest added.