Affin Hwang Capital raises target price for AEON Credit to RM12.70

TheEdge Tue, Jul 07, 2020 10:51am - 3 years View Original


KUALA LUMPUR (July 7): Affin Hwang Capital Research has reaffirmed its "buy" call for AEON Credit Service (M) Bhd at RM9.51, with a higher target price (TP) of RM12.70 (from RM12.30), based on an unchanged price/earnings (P/E) target of 13 times estimated calendar year 2021 (CY21E) earnings per share of 97.9 sen.

In a note today, the research firm said AEON Credit could be a beta play due to a sharp correction in its share price year to date.

“We remain upbeat on AEON Credit given its value-chain transformation initiatives, new products and market diversification through its B2C2B (business-to-consumer-to-business) model, which are game changers in this digital age in reaching out to more customers,” it said.

The research house said AEON Credit reported poor results for the first quarter ended May 31, 2020 (1QFY21), with net profit declining by 68.5% year-on-year (y-o-y) and 67.2% quarter-on-quarter (q-o-q), largely due to a higher impairment loss on receivables.

“In our recent discussion with management on the outlook for 2QFY21, we learnt that credit collection initiatives post the moratorium period in April-May 2020 had yielded better results.

"Nonetheless, net credit cost in FY21 is expected to remain elevated as we expect a potential rise in AEON Credit’s gross non-performing loan (NPL) level,” noted Affin Hwang.

Overall, the research firm revised down its FY21 net earnings forecast for AEON Credit by 14% as it adjusted net credit cost higher to 412 basis points (bps), from 353 bps, and simultaneously revised up interest expense by 20% owing to an increased debt level.

It also tweaked receivables growth to -3.6% y-o-y for FY21E from -4% due to a positive growth of 1.2% q-o-q in 1QFY21.

“Meanwhile, for FY22E, we raise our earnings forecast by 6.3% as we account for a lower net credit cost of 304bps (from 334bps). We expect AEON Credit’s gross non-performing loan ratio to ease from a projected 2.3% in FY21E to 1.9% in FY22E,” it added.

On a more positive note, the research firm said AEON Credit had stepped up collection initiatives from delinquent borrowers after the moratorium period (April to May 2020) came to an end.

Key downside risks are a rising unemployment rate and increased defaults.

As at 9.58am today, shares in AEON Credit were nine sen or 0.95% higher at RM9.60, bringing the market capitalisation of the group to RM2.41 billion. It saw 20,500 shares traded.

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