AEON Credit could see a stronger 4Q on growth in receivables and better collection

KUALA LUMPUR: Aeon Credit could see a stronger 4Q16 ending Feb 28, 2016, driven by a pick-up in receivables volume growth and improved collection efforts, said Affin Hwang Capital Research.

The company’s 3Q16 results were stronger year-on-year (+10.5%) and quarter-on-quarter (+10.1%) due to higher recorded interest income. This brought 9M16 profit after tax to RM160.1mil, up 5.3% from a year ago. 

“Though the annualised 9M16 core net profit represented 69% of our forecast (and 70% of consensus), we consider the earnings to be in-line with our expectations in anticipation of a much stronger 4Q16, coinciding with traditional year-end purchases,” said Affin in a note on Monday.

Gross NPL ratio has increased to 2.68% in 3Q16 as compared to 2.58% in 2Q16, as receivables growth continued to expand.

Affin added that although it will likely be challenging for AEON Credit to maintain robust receivables growth rate of above 30%, it believes on-going efforts to target other higher income segments (via personal loans financing) and the SME segment will gradually make up for the slower receivables growth. 

The setting-up of additional new service centres, merchant tie-ups and cross-selling initiatives (insurance, credit cards and general easy payments) will also boost up revenue.

Affin maintains a Buy call on AEON Credit with an unchanged target price of RM14.80. “With receivables growth at circa 20% p.a. and an average effective interest rate at 16-17%, AEON Credit remains an alternative stock to the banking sector given its high ROE of 20%,” it said.