AeonCR surpasses expectations
KUCHING: Aeon Credit Service Bhd (AeonCR) surpassed analysts’ expectations as its first quarter of financial year 2019 (1QFY19) core net profit (CNP) has climbed 32 per cent year over year (y-o-y) higher to RM95.6 million.
According the research arm of Kenanga Investment Bank Bhd (Kenanga Research), AeonCR’s surge in C NP surpassed expectations as it made up 31 and 30 per cent of theirs and consensus’ full-year forecasts.
“The positive deviation was due to better-than-expected credit charge ratio anchored by lower impairment loss on financing receivables on better collection,” said the research arm who added that this was due to better collection during March and April period alongside the adjustment of the MFRS9.
The total income of the group grew by seven per cent in 1QFY19 and has driven by stronger interest income (NII) which saw an eight per cent improvement from a 10 per cent growth in gross financing receivables.
Meanwhile, it noted that other income also increased by two per cent on better recovery from bad debts, better commission income from sale insurance products and loyalty programme processing fees.
In another note, the research arm of Affin Hwang Investment Bank Bhd (Affin Hwang Capital) said it believed AeonCR would be turning more aggressive down the road as focus will be on targeting the higher income market to grow its credit card, personal financing and car-financing packages.
The research team also pointed out that the group’s personal financing segment is expected to do well as the group’s growth in gross
The positive deviation was due to better-than-expected credit charge ratio anchored by lower impairment loss on financing receivables on better collection. Kenanga Research
financing receivable indicated that demand has continued to remain resilient due to its niche small ticket market for amounts average at circa RM10,000.
“Meanwhile, collection ratio improvement by leveraging on the group’s stringent customer qualification processes with advanced system adoption should minimise the impact of impairment as well as keeping non-performing loans (NPL) at a healthy level of low to mid two per cent,” added Kenanga Research.
Despite AeonCR’s previous RM96.8 million additional tax bill, Affin Hwang Capital guided that the group believed it has strong legal grounds to challenge the validity of the notice of additional assessment.
AeonCR has filed for an appeal to the court of appeal and the hearing is expected to occur in 2022 to 2023.
All in, both research houses are optimistic on the group as they expected it to be able to deliver a solid performance over next few years.
“AeonCR is on track to deliver a solid performance over FY19 to 21, arising from positive outcomes of its value - chain transformation project, realising higher receivables returns and benefitting from the 2 per cent income tax reduction for the lower income group,” said Affin Hwang Capital.
“We are forecasting two-year gross loan compound annual growth rate of 11 per cent as the three-year 3.5 per cent Irredeemable Convertible Unsecured Loan Stock (ICULS) of which over 80 per cent has already been converted has injected RM432 million to help the group build an adequate level of capital bugfer and support continuous business growth.
“All in, assuming the full ICULS conversion alongside cash injection that supports its gross loan growth, we expect FY19 to 20 earnings per share (EPS) growth of 12 to 11 per cent while CNP growth at 16 to 11 per cent,” said Kenanga Research.
Kenanga Research has increased their FY19 to 20 earnings by six to seven per cent to account for the lower impairment loss on its financing receivables and maintained its ‘market perform’ rating with a higher target price of RM14.25 from RM13.40 per share.
Meanwhile, Affin Hwang Capital maintained a ‘buy’ call on the stock with an unchanged target price (TP) of RM18.40 per share which is based on a price earnings ratio (PER) target of 13-fold on calendar year 19E EPS.