Lower impairments for Aeon Credit post CMCO

The company, which primarily offers credit cards and financing options had incurred higher impairment losses in the third quarter ended Nov 30

KUALA LUMPUR: With the country’s economy expected to improve, Aeon Credit Service (M) Bhd sees lower impairments with receivables growth post the conditional movement control order (CMCO).

The company, which primarily offers credit cards and financing options had incurred higher impairment losses in the third quarter ended Nov 30.

Due to the higher-than-expected impairment allowances, the company’s core net profit fell 10% quarter-on-quarter (q-o-q).

However, Kenanga Research noted that net interest margin (NIM) improved on better receivables mix, and offset by flattish growth.

“We believe the still elevated impairment allowances were due to lower bad debt recoveries given the prolonged CMCO.

“Improved receivables and lower impairments are likely as the CMCO is expected to be over by the end of the year, ” said the research house in a report.

For Q3, the group posted a pre-tax profit of RM57.71mil compared with RM76.49mil in the preceding quarter, largely due to higher impairment losses on financing receivables of RM156.91mil recorded in the current quarter compared with RM112.01mil in the preceding quarter.

The research house noted that the improved NIM was due to its focus on its higher-yielding segments, namely motorcycles and personal financing.

“We consider the results to be broadly in line, given the improved NIM with receivables growth likely to improve ahead as challenges receded post CMCO.

“While higher impairment losses were unexpected, we expect it to normalise ahead as the economy slowly improves, ” said Kenanga.

Meanwhile, MIDF Research believed that the higher revenue seen in the Q3 would moderate the impact of higher provisions which would drag the group’s earnings.

“We believe that provisions will continue to be a weigh to the Aeon Credit’s earnings especially post loan deferment period.

“Furthermore, lower current collection ratio suggests that delinquencies might be trickling in. However, we believe that asset quality will likely remain stable, ” the research house said.

The group posted revenue of RM401.47mil for its Q3 compared with the RM402.46mil recorded a year ago.

The improved revenue was driven from higher income q-o-q from motorcycle and personal financing segments.

MIDF Research said it maintains a “neutral” call on the stock with revised target price of RM9.90 (from RM9.45) as is rollover its valuation to FY22.

Kenanga Research, meanwhile, has a “market perform” with a target price of RM10.15.