AEON Credit on the right path

Aeon Credit Service (M) Bhd
(Dec 22, RM6.40)

Maintain buy at RM3.66 with target price of RM4.35: Revenue and net profit for 9MFY11 perked up by 3.8% and 10% year-on-year (y-o-y), mainly driven by:
(i) strong revenue growth from the personal financing (+6%) and credit card segments (+9%); and
(ii) a 24% y-o-y jump in other income, bolstered by higher transaction fee income (RM5.7 million) arising from increased financing transaction volume.
This was in tandem with its growing trade receivables, which were higher by 9.7% year-to-date.
Revenue from credit cards grew 9% owing to the company’s aggressive card recruitment efforts and enhancements in card benefits.
Credit cards in circulation expanded by 20% to 135,000, and we believe this number will continue to go up and reach the required break-even base of 150,000 in the near term.

Meanwhile, its easy payment schemes (revenue: +5%) remained the major revenue contributor, accounting for 60.2% of revenue for 9MFY11.
Non-performing loans (NPLs) improved to 1.68% (1HFY11: 1.73%), thanks to prudent risk management and portfolio management to control NPLs, while CAR stood at 23.8% (FY10: 24.8%). Cost of funds hovered at around 4.4%, which is in line with our estimate of 4.5%.
We expect stronger 2HFY11 results in conjunction with the upcoming major festive seasons and better consumer sentiment (Consumer Sentiment Index — 3QFY10: 115.8 versus 2QFY10: 110.4).

Maintain “buy” on Aeon Credit with an unchanged target price of RM4.35, based on historical two-year price-earnings ratio of 8.5 times over FY11 EPS. — OSK Investment Research, Dec 22