KUALA LUMPUR: Affin Hwang Capital has raised Aeon Credit Service (M) Bhd's financial year 2024 (FY24) receivables growth assumption estimates to 12 per cent from 10 per cent while maintaining FY25-26 estimated at 11 per cent.
This was due to the company's digital-onboarding process, including the AI-based scoring model which have been the key driver to increase the receivables approval ratio while being able to screen customer's credit risk accurately.
"According to Aeon Credit, the positive result was reflected in the improvement in their approval ratio from 4.0 per cent (based on manual approval) to circa 20 per cent while able to screen and reduce high-risk group of customers from 30 per cent to 20 per cent.
"Among the initiatives taken, Aeon Credit will continue to focus on the completion of its 'Straight-Through-Processing' (STP) under its Loan Origination System 3.0 (implemented since September 2023).
"The AI-based model, Gailabo, had also improved the credit-approval process of its once problematic motorcycle-financing portfolio (caused by unscrupulous merchants)," said Affin Hwang in a report.
The firm, however, said the positive impact from stronger receivables growth is being mitigated by higher interest expense as a result of increased borrowings.
There is also the element of upfront provision (2.0-3.0 per cent) for new receivables acquired prior to getting the return of its cashflows.
"We have also factored in start-up costs of RM5 million/RM45 million/RM30 million in FY24/25/26 related to the digital bank," it said.
Aeon Credit is all set to embark on the commercial operations of the Islamic digital bank in early 2024.
Nonetheless, it may likely incur a start-up loss of about RM50-60 million in the first year of operations.
Affin Hwang reiterated its "Hold" call for the stock with a target price kept at RM6.