RHB Research expects Aeon Credit to book 14% earnings growth in FY25.
PETALING JAYA: Aeon Credit Service (M) Bhd
is likely to show strong growth and promising asset quality prospects moving forward, although it will be dragged by digital bank startup losses.
RHB Research said Aeon Credit remained a top pick in the sector, given its growth prospects and undemanding valuations based on its current price-to-book value (P/BV) of one times versus 14% return on equity (ROE), including digital bank losses.
The research house has maintained a “buy” call on the stock with a target price of RM7.
This represented a 25% upside and 4% financial year 2025 (FY25) yield.
“Management guided for its share of startup losses from the digital bank operations to reach RM60mil per annum.
“This would lead to negative earnings growth in FY25, though the potential growth avenues that these open up for the parent look exciting
“Notwithstanding the digital bank startup losses, we expect Aeon Credit to book 14% earnings growth in FY25.
“This will be driven by robust receivables growth and lower credit costs,” RHB Research said.
The research house added Aeon Credit’s third-quarter FY24 (3Q24) results briefing further solidified the counter’s growth and promising asset quality prospects.
It pointed out that Aeon Credit’s receivables were 12% higher year-on-year in 3Q24, ahead of the 10% target for the year.
“The group’s marketing and digitalisation initiatives seem to be bearing fruit.
“This is as it is receiving more financing applications among higher-quality customers.
“It has also launched its digital onboarding platform for personal financing facilities, which could further push growth in that segment.
“Management sees scope for its receivables to grow at 10% to 15% year-on-year (y-o-y) moving forward – a positive turn from the 10% target for FY24,” RHB Research added.
The research house added that the company saw stable collection trends for not past-due accounts and improvement for accounts that are less than three months past due following the tightening of its credit requirements.
Aeon Credit recorded large write-offs in 3Q24 due to legacy accounts from the moped and personal financing segments that were past due by over four months.
“With the continuous onboarding of higher-quality customers, we believe credit costs can stabilise to the pre-pandemic average of 3% to 4% moving forward,” RHB Research added.
In terms of its digital bank business, ACS Digital Bhd has completed its operational readiness tests.
It was now awaiting the operating licence from the central bank, which it expects to receive next month.
The brokerage firm said the bank will then launch its services for staff use first, before opening up to the public within two months, focusing on existing customers within the Aeon ecosystem first.
It added that the share of startup losses from the digital bank segment to be RM50mil to RM60mil per annum (RM100mil to RM120mil total).
Previously, RHB Research had assumed a lower share of losses to be RM30mil per annum (RM60mil total).
“We have cut the FY24 net profit forecast by 4% to factor in higher credit costs. We have also lowered FY25 and FY26 net profit by RM30mil each on higher digital bank startup losses,” the research house said.
