KUALA LUMPUR: Aeon Credit Service (M) Bhd's financial year 2024 (FY24) results exceeded RHB Research's estimates due to stronger-than-expected net interest income (NII).
The investment bank stated that its initial analysis of the figures was positive, with robust receivables growth across the board and indications of improving asset quality.
"Aeon Credit's FY24 net profit of RM414 million, which increased by two per cent year-on-year (YoY), beat our estimates but came in line with the street's.
"The deviation from our numbers mostly stemmed from better-than-expected interest income," it said in a note.
Aeon Credit's YoY profit drivers were net interest income (NII) with an increase of 18 per cent and non-interest income (non-II) with a nine per cent rise.
Operating expenses (opex) increased by 13 per cent and impairment allowances surged by 45 per cent, serving as the primary YoY drags.
In the fourth quarter ended Feb 29, 2024 (4Q24), there was a two per cent growth in net interest income (NII), supported by robust growth in receivables.
Moreover, impairment allowances decreased by half due to a net write-back of provisions.
However, the company's bottom line was softened by the maiden recognition of associate losses from the much-anticipated digital bank, totaling RM16.6 million.
This resulted in a net profit for the quarter of RM114 million, marking a 33 per cent QoQ increase.
A final dividend per share (DPS) of 14 sen was declared, bringing the total payout for FY24 to 34 per cent, compared to 30.3 per cent in FY23.
Meanwhile, RHB Research also noted that Aeon Credit saw its financing receivables grow 13 per cent YoY in FY24, which beat management's guidance of approximately 10 per cent growth for the year.
It said robust credit demand from higher credit-quality customers, along with successful marketing campaigns, ensured YoY growth was strong across the board.
"The company's sequentially lower non-performing loan (NPL) ratio of 2.57 per cent potentially reflects an improvement in the underlying asset quality post the tightening of credit scoring requirements for motorcycle financing facilities.
"As a result of having a higher proportion of better-credit-quality customers and improved collection performance, the group was able to write-back approximately RM59 million in provisions in 4Q24.
"Looking ahead, we do not expect provision writebacks to recur, but we think a credit cost run rate of 2.5 per cent to three per cent is possible," it added.
RHB Research also highlighted that in the FY25 forecast, Aeon Credit will aim for 10 per cent receivables growth and about 13 per cent return on equity (ROE).
It views both targets as modest, as it implies a softening in FY24 figures.
However, the investment bank said the 10 per cent receivables growth target is still ahead of its more conservative eight per cent assumption for the FY25 forecast.
"RHB Research has maintained a 'buy' call on Aeon Credit with a target price of RM7.
However, it does see upside risks to its estimates, given the results.