PETALING JAYA: AEON Credit Service (M) Bhd may see pressure on its consumer financing business from rising inflationary upheavals as the group predominantly caters to the B40 segment.
Kenanga Research estimated some 65% of Aeon Credit’s clientele are from the B40 segment and inflationary pressures may result in lower second half loan growth for the finance company in its financial year 2023 (2H23), mainly for its auto segment.
The research firm however said that the rise in the minimum wage to RM1,500 a month since May 2022, could sustain Aeon Credit’s market share in the less committal personal financing segment.
“Additionally, the launch of new e-wallet and iAeon finance interface in October 2022 should boost the group’s mix of higher income customers, while further updates in 2023 could introduce more seamless onboarding processes,” Kenanga Research said.
It added inflationary pressures could bring rise to delinquency concerns, particularly in the same B40 portfolio for Aeon Credit.
“To mitigate asset quality risks, the group opts to decline applicants not meeting a certain income level while increasing down payments in auto financing to secure better recoverability,” it added.
On a positive note, Kenanga Research said Aeon Credit’s digital bank operations may come ahead of Bank Negara’s April 2024 target.
“With regards to its Islamic digital banking timeline, the group aspires to commence operations by October 2023,” it said.
At the end of last April, Bank Negara awarded five consortiums with digital banking licences. Three of them were granted conventional digital bank licences and the other two with Islamic digital bank licences.
A consortium of Aeon Financial Service Co Ltd, Aeon Credit Service (M) Bhd and MoneyLion Inc was one of the winners of the Islamic digital bank licence.
“As Aeon Credit holds 45% of the entity, it would only inject up to RM90mil capital,” Kenanga Research said.
“Additionally, the group seeks to appoint a separate team of vendors and consultants in the development of the digital bank, owing to the different expertise required,” it added.
Kenanga Research believes it would not leave any impact on the group’s earnings in the near-term.
It slashes its earnings estimates for Aeon Credit’s FY23 by 8%, after factoring in higher credit costs of 3% compared with 2.5% previously, due to possible higher B40 defaults arising from inflationary pressures.
It also factored in an expectation of 9% financing growth for FY23, which is slightly lower than Aeon Credit’s 10% target.
The research house maintained its “outperform” call on the lender but trimmed its target price for the stock to RM16.95 per share from RM17.20 previously.