AEON Credit earnings prospects to remain strong
KUCHING: AEON Credit Services (M) Bhd’s (AEON Credit) earnings prospects is poised to remain strong supported by growth of financing from the retail market.
The research arm of Kenanga Investment Bank Bhd (Kenanga Research) in a report said the nonbanks financial institution’s (NBFI) resilient earnings prospects is supported by healthy gross financing receivables growth of eight to nine per cent.
The research firm noted demand for loan from AEON Credit’s targeted customers - retail market is still resilient due to the company’s strategy on focusing on the niche market segment as compared to other financial services providers that faced tougher times in growing their loan portfolios amid the current economic condition.
Thus, Kenanga Research maintained its gross financing receivables growth of nine per cent for AEON Credit’s financial year 2017 (FY17) ending February 2017 to FY18 ending February 2018.
Besides AEON Credit’s healthy loan growth, the research firm also observed that the company has decent asset quality with non-performing loan (NPL) ratio expected to be between two and three per cent.
Kenanga Research said the group’s NPL ratio continued to improve to 2.33 per cent as of November 2016 from 2.43 per cent boosted by higher net financing receivables.
Additionally, the research division of MIDF Amanah Investment Bank Bhd (MIDF Research) in a separate report said the asset quality of the NBFI has improved.
Concurring Kenanga Research, MIDF Research noted the company’s NPL continued to improve to 2.3 per cent due to intense collection effort.
It gathered that the company would continue to explore opportunities to improve the profitability through various initiatives for instance value chain transformation project, digitalisation of branch operations and so forth.
Meanwhile, AEON Credit told Bursa Malaysia that the group’s earnings for the third quarter of financial year 2017 (3QFY17) gained by 26 per cent year-on-year (y-o-y) to RM67.05 million from RM53.36 million recorded in 3QFY16 ended November 2015.
The company noted 3QFY17 revenue increased by 14 per cent y-o-y to RM280.35 million from RM245.78 million generated in 3QFY16.
MIDF Research said the increase in AEON Credit’s 3QFY17’s net profit was due to higher interest income of RM244.8 million which increased 15 per cent y-o-y; four per cent quarter-on-quarter, higher fee income y-o-y and q-o-q and increased of other operating income of RM28.4 million (31 per cent y-o-y and 14 per cent q-o-q) as a result of higher bad debts recovered, better commission income from sale of insurance products and AEON Big Loyalty programme processing fees.
For nine months of FY17 (9MFY17) ended November 2016, AEON Credit said net profit grew by 16 per cent y-o-y to RM184.87 million from RM160.09 million recorded in 9MFY16.
Kenanga Research added the group’s total income for 9MFY17 grew by 14 per cent driven by stellar performances in both net interest income and other operating income.
Delving deeper, Kenanga Research observed that AEON Credit’s net interest income increased by 21 per cent attributed to higher net financing receivables while higher growth of operating income was due to stronger recovery of bad debts, better commission income from sale of insurance products and AEON Big loyalty programme’s processing fees.
Besides that, the research firm noted the fourth quarter (4Q) of the financial year was seasonally the strongest quarter for AEON Credit Group.
Therefore, MIDF Research has upgraded its recommendation of AEON Credit’s shares to a ‘trading buy’ while Kenanga Research has maintained its ‘outperform’ call for the company.