While FY21 is epected to be a lacklustre year, the research house said an earnings recovery will follow with a rebound in receivables growth and lower net credit cost.
According to the research house, Aeon Credit has invested in various digital transformation initiatives such as an e-wallet, Aeon PLUS card and digitising its operations and approval processes, which have enhanced overall turnaround time.
Meanwhile, its forcus to expand receivables frowth in the M40 segment would also help to lower its overall portfolio risk and capture stronger receivables growth when the economy recovers.
"We have adjusted our FY21 and FY22 earnings forecasts by -14% and +6.3% in this report, post the 1QFY21 results and after a discussion with management," said Affin Hwang.
In 1QFY21, Aeon Credit's net profit fell 68.5% year-on-year due to a higher impairment loss on receivables.
Affin Hwang was briefed by Aeon Credit's management that credit collection initatives post the moratorium period in April-May 2020 yielded better results.
However net credit cost in FY21 is expected to remain elevated due to a potential rise in gross non-performing loans.
The research house believes Aeon Credit could be a beta play due to its recent sharp share price correction. It has a "buy" call on the stock and raised its target price to RM12.70 from RM12.30 previously.