Aeon Credit’s consumer loan growth expected to be ‘soft’

by **Cals** Tue 23 Sep 2014, 01:37

Business & Markets 2014

Written by AllianceDBS Research

Monday, 22 September 2014 10:31

Aeon Credit Service (M) Bhd
(Sept 19, RM15.98)
Maintain hold with target price of RM16.30: Aeon Credit’s net profit of RM103.7 million for the first half ended Aug 31 of financial year 2015 (1HFY15) made up 49% of our full-year FY15 estimate. However, on a quarter-on-quarter (q-o-q) basis, net profit fell 16% in the second quarter (2QFY15) mainly due to the increase in provisions on impaired loans (up 29% q-o-q).

Revenue grew 4% q-o-q led by its vehicle easy payment (VEP, up 8%) and general easy payment (GEP; up 3%) segments while its credit card segment contracted by 1% (versus +9% in 1QFY15). Average spread fell q-o-q as average funding cost increased to 4.2% from 3.9% a quarter ago due to a new source of long-term funding.

Loans grew 8% q-o-q to RM4.2 billion to take year-to-date loan growth to 16%. Key growth drivers included VEP (+11%) and GEP (+7%). There was a stress on asset quality as the non-performing loan (NPL) ratio increased to 2.65% from 2.18% in 1QFY15 mainly from the VEP and personal financing segments.

An interim dividend of 27.4 sen was declared in 2QFY15, representing a 38% payout ratio to 1HFY15’s earning per share of 72 sen. This was in line with our expectations.

The capital adequacy ratio (CAR) ratio stood at 18% as at end-August 2014. Bank Negara Malaysia (BNM) has imposed a minimum 16% total capital adequacy ratio requirement on Aeon Credit.

Our FY15 loan growth target is maintained at 29%, a slowdown from 52% in FY14. We expect softer growth in consumer loans as BNM continues to place management of household indebtedness high on its agenda.

Aeon Credit’s NPL ratio hit a high of 2.65% as at end-August 2014. We understand that management is continuously balancing its credit risk profile by adhering to a stringent assessment of its credit applicants. — AllianceDBS Research, Sept 19

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This article first appeared in The Edge Financial Daily, on September 22, 2014.[/size]