Aeon Credit lifted to ‘trading buy’ with higher target price

PETALING JAYA: MIDF Research has upgraded Aeon Credit Service (M) Bhd to a “trading buy” call, with a higher target price of RM15.82 from RM15.40, following its nine-month FY17 net profit of RM185 million that came in line with expectations.
Aeon Credit’s third-quarter earnings grew 26% to RM67.1 million driven largely by higher interest income of RM244.8 million (+15% year-on-year), fee income of RM35.6 million (+6% year-on-year) and other operating income of RM28.4 million (+31% year-on-year), thanks to higher bad debt recovery, better commission income from sale of insurance products and AEON Big Loyalty programme processing fees.
MIDF Research said Aeon Credit’s strong interest income was driven by the expansion of its loan book with a double-digit growth of 20%, which is in line with the management’s target to reach RM6.3 billion for nine months of FY17. This was mainly contributed by personal financing of RM1.5 billion (+39% year-on-year), automobile financing of RM1.9 billion (+30% year-on-year) and motorcycle easy payment scheme of RM1.8 billion (+12% year-on-year).
On asset quality, Aeon Credit’s non-performing loans have continued to improve to 2.3% due to intense collection effort. The company will continue to explore opportunities to improve the profitability via various initiatives, such as value chain transformation project and digitalisation of branch operations.
While fine-tuning earnings forecasts numbers to reflect improvement in some key areas, MIDF Research remains neutral on Aeon Credit’s outlook due to uncertainty in macroeconomic condition that will limit its profitability.