AEON Credit Service (M) - 9M13 results in line

Period    3Q13/9M13

Actual vs.  Expectations   The 9M13 net profit of RM95.1m was within our expectation and that of the consensus, making up 73.5% and 74.3% respectively of the numbers.

Dividends   No dividend was declared as expected.

Key Result Highlights   Cumulatively,  9M13 revenue was up 34.2% from RM250.0m to RM335.4m, driven by a higher financing transaction volume in the business and receivables (+45.0%) segment.

 YoY, the 3Q13 net profit was boosted 36.8% from RM25.3m to RM34.9m due to a higher cost efficiency from the tremendous growth in financing receivables(+49.4%) and a lower ratio of net impairment loss over financing receivables. The NPL dropped from 1.94% to 1.81%.

 QoQ,  the net profit rose from RM32.1m to RM34.9m (+8.9%) underpinned by the increased financing transaction volume. We see double-digit growth in the vehicle financing (+12.5%) and personal financing (+28.9%) segments. Other segments also rose such as general easy payment (+3.2%) and credit cards (+4.6%). The group’s new business segment, SME business financing contributed RM12.7m (0.6%) to the 3Q13 total receivables.

Outlook   AEONC is still the key beneficiary of the implementation of the Responsible Guidelines policy judging from its 3Q13 business volumes and fees growth thus far. AEONC has further strengthened its presence in the mass consumer credit by opening more branches.  As such, the company FY13-14E earnings growth is expected to further improve due to the guidelines and the fact that private consumption still remains the main growth engine for the local economic growth.

 The company’s personal financing division and motorcycle easy payments scheme are now the main growth drivers as against the past where credit card and motor-cycle easy payments were the main drivers.  However, we have been conservative in our earnings estimates but gather that they could be poised for upward revisions over the next 12 months if the company performs well.  

Change to Forecasts  No changes in our forecasts.

Rating  Maintain MARKET PERFORM

 At the current level, the stock offers a potential capital upside of 7.6% as per our revised target price (TP).

Valuation    Due to its optimistic outlook, we are raising our TP to RM13.00 (from RM9.70 previously) based on higher PER of 12.0x over FY14 EPS of RM1.08. The TP also implies a 4.2x FY14 PBV.

Risks   A higher than expected NPL could drag the earnings downward.

Source: Kenanga