Cautious consumer sentiment to weigh on Aeon Credit Service

Aeon Credit Services has enjoyed healthy net interest margin (NIM) in the past

KUALA LUMPUR: Aeon Credit Service (M) Bhd has enjoyed strong earnings growth over the years, with its financing receivables rising to RM6.02bil in the first half of financial year 2017 (1HFY17) on the back of strong demand growth for its products and services from its niche market segment.

MIDF Research said on Wednesday, that it has forecast Aeon Credit Service’s total financing receivables to grow at a slightly slower pace of 17%. 

While the company has enjoyed healthy net interest margin (NIM) in the past, the research house expected the NIM to diminish going forward. 

This is attributable to the lower yielding used car financing in its loan portfolio and higher funding cost for new long term funding.

MIDF Research has projected Aeon Credit Service’ net profit to grow marginally, despite its strong growth over the last five years.

“We anticipate that its net profit is set to grow at a three-year compound annual growth rate (CAGR) of only 3%

“This is due to high base effect, possible cautiousness of consumer affecting demand and high household debt level,” said MIDF Research in its report, while adding that asset quality will still be at manageable level due to management’s prudent action to closely engage with defaulters.

The research house has initiated coverage on Aeon Credit Service with a “neutral” recommendation and a target price of RM15.40.