Aeon Credit Service (M) Bhd
(April 21, RM14.60)
Maintain hold with a higher target price (TP) of RM12.80: Aeon Credit Service’s (TP) financial year ended Feb 28, 2015 (FY15) net profit came in higher than our or consensus estimates. Net profit grew 23% year-on-year (y-o-y), thanks to higher recoveries and lower-than-expected funding cost.

On gross profit level, earnings were in line. Loan growth moderated to 27% y-o-y. On a quarterly basis, loans grew 3% in the fourth quarter of FY15 (4QFY15) versus 6% quarter-on-quarter (q-o-q) in 3QFY15. Motorcycle and car easy payments continued to lead loan growth, expanding by 3% and 13% respectively. But this was dampened by a contraction in general easy payment segment.

Our loan growth assumption for FY16 stands at 25%. Capital ratio was higher at 21.4% as of end-February 2015, boosted by the issuance of perpetual sukuk. We raise earnings by 1% each for FY16 and FY17 as we make minor adjustments post results. Asset quality improved during the quarter as the non-performing loan (NPL) ratio decreased to 2.76% (versus 3.07% in 3QFY15).

Despite this, we remain cautious on Aeon Credit’s growth prospects as we expect the operating environment to remain tough amid softer consumer sentiment. We maintain a “hold” rating with a higher TP of RM12.80 as we roll forward our valuation base to calendar year 2016 (CY16). This is based on eight times CY16 earnings per share which is in line with its five-year average price-earnings ratio. — Alliance DBS Research, April 21

This article first appeared in The Edge Financial Daily, on April 22, 2015.