business

Tough first six months but Aeon Credit can sustain momentum

KUALA LUMPUR: Aeon Credit Service (M) Bhd's business momentum can be sustained despite reporting lower earnings in its first half of financial year 2023 (1HFY23). 

RHB Research said Aeon Credit's first half net profit of RM234 million came in at 62 per cent of its full-year estimates. 

While Aeon Credit's asset quality might be beginning to show signs of stress, the research firm took comfort in the strong loan growth and effective cost controls. 

The company's loan loss provisions saw a 126 per cent increase year-on-year (YoY) in 1HFY23  leading to net profit that was flat YoY while, for the second quarter its bottomline was again brought down by hefty impairment allowances of RM106 million, leading to a quarterly net profit of RM70.6 million which was flat YoY. 

"Evidently, Q2 and 1H results were both dampened by increased impairment allowances. 

"On top of higher delinquencies, management attributes this to higher-than-expected write offs, and additional overlays of RM11.1 million set aside. 

"We also understand that system disruptions led to lower staff productivity, which resulted in lower-than-expected recoveries," said RHB Research. 

However, it noted that the company's end-Q2 gross receivables of RM10.4 billion were up eight per cent YoY. 

Key YoY drivers were personal (up 12 per cent) and vehicle (up 6.0 per cent) financing, which were offset slightly by lower credit card outstanding amounts (down 5.0 per cent). 

Year-to-date, loan growth stands at 5.3 per cent, tracking management's full-year guidance of 10 per cent. 

"With the B40/lower-M40 segments likely to be beneficiaries of Budget 2023, we believe the strong business momentum can be sustained, if not improved," it added. 

The firm maintained "Buy" on the stock with a lower target price of RM15.70 from RM16.60 previously.

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