High operating expenses continue to weigh on AEON Credit earnings

By Xavier Kong

ANALYSTS remain confident of AEON Credit Service (M) Bhd (ACR) following the group’s rebound in the third quarter ended Nov 30, 2019 (3QFY20), citing the group’s strong asset quality as a cornerstone for the group’s financials moving forward.

“The strong growth in financing receivables suggests there is still demand for its financial products with strong asset quality,” says MIDF Research analyst Imran Yassin Yusof, adding that asset quality has been very healthy for the group for the past couple of years.

ACR had recorded a 3QFY20 revenue of RM402.46 mil, an increase of 15.5% year-on-year (yoy) from a previous RM348.5 mil. This translated to a net profit of RM69.93 mil, down 19.7% from a previous RM87.13 mil yoy.

In terms of its nine-month cumulative results, the group recorded a total revenue of RM1.19 bil, up 17.8% from a previous RM1.01 bil yoy. This translated to a cumulative profit of RM203.66 mil, down 23.7% from a previous RM267.01 mil yoy.

Affin Hwang Capital analyst Tan Ei Leen expects the group to see a better 4QFY20, on the back of normalisation in its net credit cost, in addition to the interest income contribution from the robust receivables growth in the recently ended quarter.

Moving forward, Tan believes ACR will continue to manage its balance sheet growth based on prudent credit-risk assessment, despite market competition and a cautious outlook in 2020.

Tan maintains a buy call on ACR, with an unchanged target price of RM17.20.

“We remain upbeat on ACR, driven by its value-chain transformation project and expansion into the higher-income M40 market and an improved B2C2B (business-to-consumer-to-business) model,” says Tan.

However, Imran maintains a more cautious outlook, noting that while ACR managed to maintain its strong revenue growth momentum, its high operating expenses continue to weigh on its earnings.

Imran maintained a neutral call on ACR, with a revised target price of RM15.50 from RM15.60 due to a revision in earnings to factor in the higher operating expenses.

ACR’s shares closed at RM14.70 on Dec 20, down two sen, with 221,000 shares changing hands. – Dec 20, 2019

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