KUALA LUMPUR: The improvement in financing volume will put AEON Credit Service (M) Bhd in a position for recovery even as movement restrictions prolong and the automatic six-month loan moratorium is reintroduced.
The company surprised stakeholders with its five-fold increase in net profit to RM163.09mil in the first quarter ended May 31, 2021 (Q1) from a year ago.
The increase was driven by higher other operating income (+95%) –mainly from higher bad debt recovery – and lower impairment losses (-87%) from the reversal of impairment loss provision.
Aeon Credit’s impressive showing has earned it a few upgrades from analysts. In a note to clients yesterday, Kenanga Research upgraded the stock to an “outperform” with a higher target price of RM14.00, while MIDF Research upgraded it to a “trading buy” with an unchanged target price of RM12.90.
Kenanga noted that Aeon Credit’s core net profit came in above its and consensus’ expectations at 59% and 60%, respectively.
“There are indications of growth ahead as total transaction and financing volume rose 11.5% quarter-on-quarter (q-o-q) in Q1 of financial year 2022 (FY22).
“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, ” the research house said.
While it expects impairment losses to increase sequentially in the subsequent quarters, Kenanga opined that the impact is unlikely to be as severe as in FY21.
Additionally, the opt-in structure of the new six-month moratorium should also lessen the impact to the company’s topline.
MIDF highlighted that its asset quality had improved. The non-performing loan ratio improved by -71 basis points q-o-q and -17 basis points year-on-year to 1.75%. This was due to better credit management and rationalisation of its financing book.
RHB Research, which has a “buy” call on the company, noted that the collection trend has been healthy despite the re-imposition of the movement control order, largely due to various cash handouts and consumer-friendly relief measures by the government.
“We raise the forecast FY22 earnings by 7% on a lower credit cost assumption, given the net write-backs in Q1 of FY22. (But) our forecast FY23 is lowered by 4% due to less aggressive receivable growth assumptions, ” it said.
RHB has raised its target price to RM14.80 on the earnings revision and some housekeeping updates on valuation input.
“After a 9% decline in share price, we think the negatives have been somewhat priced in, ” said Kenanga Research.
Aeon Credit closed up 34 sen, or 2.89%, at RM12.12 yesterday.