KUALA LUMPUR (July 7): Analysts covering AEON Credit Service (M) Bhd have upped their target prices and upgraded calls for the stock after the company announced that its net profit expanded by 521% year-on-year to RM163.09 million for the first financial quarter ended May 31, 2021 (1QFY22).

Kenanga Research upgraded the stock to a "buy" and raised its target price (TP) to RM14.00 from RM13.05 while RHB Research upgraded its TP for AEON Credit to RM14.80 from RM14.50 as it maintained its "buy" call.

MIDF Research upgraded AEON Credit to a "trading buy" from "neutral" as it kept its TP for the stock at RM12.90.

In a report today, RHB Research said AEON Credit remains its "pick for the recovery theme" as its current valuation (below -1SD) suggests the market has yet to price in the recovery.

It raised the company's FY22F (Feb) earnings by 7% on lower credit cost assumption (given net write-backs in 1QFY22).

It noted that AEON Credit's 1QFY22 "results beat on surprise net write-backs from improved delinquency movement".

"Although the full lockdown impact has yet to fully manifest, management is considering possible targeted relief measures for borrowers," RHB Research noted.

"The full lockdown impact has yet to manifest but management expects a tougher situation in 3QFY22F (Sep-Nov 2021) due to the full lockdown. Relief measures (eg moratorium) are being considered but will be targeted, hence mitigating profitability impact. Collection trend has been healthy despite the reimposition of MCO 3.0, largely due to various cash handouts and consumer-friendly relief measures by the government," it added.

Meanwhile, Kenanga Research upgraded AEON Credit to a "buy", on the back of a higher-than-expected net interest margin and lower-than-expected credit costs from lower impairment losses.

"While impairment losses should increase sequentially in the subsequent quarters, we think the impact is unlikely to be as severe as in FY21. The opt-in structure of the six-month moratorium should also lessen the impact to top line," stated the research house.

"After a 9% decline in share price, we think the negatives have been somewhat priced in. Meanwhile, there are indications of growth ahead as total transaction & financing volume rose 11.5% quarter-on-quarter (q-o-q) in 1QFY22. This is mainly attributable to: motorcycle financing (+10% q-o-q) and personal financing (24% q-o-q). We expect credit card volumes to improve as movement restrictions ease in the coming months," it added.

MIDF Research has also upgraded AEON Credit to a "buy" call as it maintained TP at RM12.90, noting that it believed that AEON Credit's "strong 1QFY22 result will provide as a solid base for earnings growth this year and it will be one of the beneficiary once the economy reopens".

"We believe that the worst may be behind them for AEON Credit, bearing in mind the impact of the Phase 1 PPN and the EMCO. While these short term headwinds may cause some short term negative impact such as potentially higher credit cost in 2QFY22, we opine that it will not be prolonged as the national vaccination programme is accelerating," it stated.

It added that non-performing loan ratio improved by -71bp q-o-q and -17bp year-on-year to 1.75%.

This, MIDF Research noted, was due to better credit management and rationalisation of AEON Credit's financing book. It added that the company's current collection ratio "remains high" at 98.3%.

AEON Credit is the third top gainer at the time of writing with the stock trading higher by 44 sen or 3.74% to RM12.22.