AEON Credit sees solid FY18 on stronger interest income

KUCHING: AEON Credit Service Bhd’s (AEON Credit) earnings in its financial year 2018 ( FY18) climbed 13 per cent year on year (y- o-y)r to RM300.1 million, supported by steady progression in interest income of 13.6 per cent.

According to MIDF Amanah Investment Bhd ( MIDF Research), AEON Credit ’ s biggest segments -- Automobile Financing, Personal Financing and Motorcycle Easy Payment -- grew at an average of 15 per cent y- o-y. On quarterly basis, the group’s 3QFY18 net profit grew by 2.8 per cent y- o-y.

“Its key segments steered earnings higher,” it detailled in a report yesterday. “Personal financing, which accounted for approximately 24 per cent of operating income, recorded a strong growth of 23.2 per cent y- o-y.

“Meanwhile, both Automobile Financing’s and Motorcycle Easy Payment’s operat ing income displayed the same trend, climbing higher by 13.5 per cent and +9.6 per cent y- o-y respectively.

“We bel ieve this healthy improvement stemmed from higher consumer spending during the quarter due to seasonality factors. Overall, the income from the group’s core business grew mostly in tandem with our assumption of 14.2 per cent in FY18.”

In FY19, MIDF Research ascribed high single digit growth assumptions to AEON Credit’s net interest income, believing this achievable considering the group’s consistent performance of expanding its core income over the years.

“Growth in opex should be slower in the long run. Earnings in FY18 were moderated by higher overall opex which increased increase in borrowings of 2.7 per cent in parallel with the growth of receivables.

“Despite the higher opex, we took comfort to see its ratio against revenue still trended down, although slightly by 0.3 percentage points y- o-y.”

Look ing at cor por at e developments, specifically on the firm being slapped with a RM96.8 million additional tax bill, Affin Hwang Investment Bank Bhd (AffinHwang Capital) saw that it was of the view that it has strong legal grounds to challenge the validity of the notices of additional assessment raised by the Director General of Inland Revenue.

“At this juncture, AEON Credit had filed an appeal fo the Court of Appeal against the High Court’s decision on March 5, 2018,” it added in a separate note.

This led AffinHwang Capital to maintain its buy call on AEON Credit with an unchanged target price of RM15.30 per share.

“We note that its share price may potentially re-rate due to the ongoing digital transformation (mobile wallet/e-wallet/cashless and paperless branches), marketing initiatives (acquisition of merchants) and two per cent income tax reduction for the lower income group.”

Moving forward, MIDF Research believed AEON Credit would continue to strive for a leaner operating expenditure management, coming from its value chain transformation.

“Key to achieving this will be improvement of its branch operation costs, which have been displayed by the significant reduction in overtime and money collection expense.

“We maintain our BUY recommendation on Aeon Credit with an adjusted target price of RM14.30.

“We continue to be optimistic on the outlook of the group’s business based on its value chain transformation journey. In addition, we are positive on the group’s initiatives to improve customer experience via the introduction of e-wallet and emoney cards, in which we opine, will improve the customers’ brand loyalty with Aeon Credit. “Potent ial re- rat ing for the group’s earnings would be the outcome of upcoming proceedings between IRB and Aeon Credit, and lower than expected future earnings.”