PETALING JAYA: Analysts have mixed views about Aeon Credit Service (M) Bhd
following a hiccup in credit costs which are higher than expected.
Reviewing its recent financial results, the non-bank lender posted a lower net profit of RM71.16mil in its second quarter ended Aug 31, 2024 (2Q24).
This was despite the higher revenue of RM541.43mil which was attributable to stronger loan and financing growth.
RHB Research noted that AEON Credit’s gross financing receivables maintained its strong growth at RM13.2bil as at end of August – a 14% year-on-year (y-o-y) jump.
The growth was driven by all segments, especially personal financing and automobile financing.
“The receivables year-to-date annualised growth rate of 16% is currently tracking ahead of AEON Credit’s 10% target for the year which was left unchanged.
“We think this target leans towards prudence, and will likely be surpassed.
“This is especially given the revision to civil servants salaries in December,” RHB Research noted in a report on the company.
On the matter of sharper-than-expected credit costs during the quarter, the research house noted it may not be a major concern, as absolute non-performing loans were flat on a quarterly basis.
“We gather that write-offs were stable quarter-on-quarter and the sharp rise was attributable to business as usual provisions following a refresh of the expected credit losses model.
“We are also encouraged by the rise in the loan loss coverage ratio to 229%.
“This provides the group with an even bigger buffer against any potential deterioration in asset quality,” it added.
Hence, RHB Research stated that it remains upbeat on the counter due to its multiple growth engines and attractive valuation.
RHB Research maintained a “buy” call on AEON Credit with a target price of RM8.80 per share with an upside of about 3% in the financial year 2025 (FY25) yield.
Kenanga Research, on the other hand, stated the higher credit cost in the quarter came as a surprise, as AEON Credit had implemented more comprehensive credit assessments via the e-KYC framework and optimisation of its merchant management network.
“Though this may pose near-term concerns, we opine it will still be well contained, albeit with narrower improvements as compared to the prior year’s performance as controls are still relatively higher,” said Kenanga Research.
On AEON Credit’s growth strategies, Kenanga Research is of the view the wider engagement from “AEON Living Zone” offers cross-selling opportunities on its captive customer base while also providing a smooth introduction of AEON Bank to the market.
However, the research house noted these channels are expected to carry heavier customer acquisition costs and will only likely be stronger accretive to earnings in the medium-term once better scale is reached.
“We slash our FY25 earnings by 16% as we raised our prior gross credit cost assumptions from 4.25% to 5% to reflect higher asset quality concerns.
“Our FY26 earnings are only slightly adjusted by minus 2% in anticipation of conditions to normalise in the near term,” it added.
Kenanga Research has maintained an “outperform” call on AEON Credit with a lower target price of RM8.35 per share.
