This article first appeared in The Edge Financial Daily on July 2, 2018
AEON Credit Service Bhd
(June 29, RM14.40)
Maintain buy with a higher target price (TP) of RM15.40: AEON Credit’s (ACSM) first quarter for financial ended May 31, 2019 (1QFY19) earnings climbed 30.9% year-on-year (y-o-y) higher to RM99.2 million. The result was 32.3% and 31.2% of our and consensus estimates, which was slightly higher.
The increase in first quarter for financial ended May 31, 2018 (1QFY18)’s net profit was mainly attributable to growth in (1) interest income of RM287.0 (+7.8% y-o-y), and (2) fee income of RM38.7 million (+8.6% y-o-y). The fee income primarily comprised bad debts recovered and commission income from sale of insurance-related products and loyalty programme processing fees.
Financing receivables expanded, by 3.8% y-o-y to RM6.9 billion, leading to bigger contribution from interest income in 1QFY19. The positive earnings were also reflected by improvement in operating expenses, declining by 6.4% y-o-y in 1QFY19. It is notable that operating expenses (opex) portion against revenue continued to improve, which was recorded at 50.6% against revenue, compared with 58.2% in the corresponding quarter of 1QFY18. Moving forward, we expect the ratio to remain healthy driven by its initiative for leaner opex management in the long run.
Earnings forecast adjusted. Given that the results were above our expectations, we are revising upwards our estimates for FY19. This is to take into account the overall opex downtrend whereby we are assuming a reduction of 5.7% y-o-y.
We maintain our “buy” recommendation on ACSM with an adjusted target price of RM15.40 (from RM14.30), as we rollover our valuation to FY20. We peg the group’s book value per share (BVPS) of RM7.00 at price-to-book-value (PBV) of 2.2 times. ACSM continues to ride on its value chain transformation journey. Our optimism also stemmed from the business proactivity in enhancing its business streams via the introduction of e-wallet and e-money cards, in which we opine, will improve the customers’ brand loyalty with ACSM. This will set a strong foundation for its revenue base, while it continues to expand product offerings to the market. — MIDF Research, June 29