Earnings lift for AEON Credit Service

AEON Credit Service (M) Bhd
(Dec 14, RM 6.23)

Maintain buy with revised target price of RM7 from RM5.70: Our net
profit forecasts have been raised after factoring in lower operating
expenses (mainly from provision of doubtful debts), which more than
offset the smaller increase in revenue contributions from the personal
financing segment (on lower blended finance charges) and credit card
business (due to lower outstanding credit balance).

We are keeping our FY12F to FY14F loan financing assumptions at RM1.5
billion (+27.8% year-on-year [y-o-y]), RM1.7 billion (+12.4% y-o-y) and
RM2 billion (+16.4% y-o-y) as demand for microfinancing products is
expected to remain steady despite the uncertain economic outlook.

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During the 2008/09 global financial crisis, the group posted loan
growth of 8.4% (and non performing loans of 1.8%) in FY10 ended
February.

Results for 3QFY12, to be released this Tuesday, should come in
stronger vis-à-vis 3QFY11 net profit of RM16 million and 2QFY12’s RM23.5
million. The most recent quarter could have benefited from spillover
festive spending for Hari Raya Aidilfitri (which fell at end-August).

Our revised net profit projections imply annual growth rates of 40.5%
(to RM89 million) in FY12 and 22% (to RM108.6 million) in FY13.

This is based on a higher CY12 target price earnings ratio of eight
times (seven times previously) after considering the expanding size of
ACSM (from RM300 million to RM751 million in market cap as net profit
posted a five-year compound annual growth rate of 35.2%) since its
listing in 2007.

Our new target price offers a potential upside of 17%, including FY13F net dividend yield of 5%. Maintain “buy”. — Hwang DBS Vickers Research, Dec 14