AEON Credit’s annualized 9MFY11 earnings were in line, representing 69.6% and 71.9% of consensus and our full-year forecasts. Revenue and net profit rose by 3.8% and 10.0% y-o-y respectively, mainly attributed to strong growth in personal financing, credit card and other income. NPLs dipped marginally to 1.68% and CAR stood at 23.8%. We are maintaining our BUY call on AEON Credit, with a target price of RM4.35 as we expect the company to maintain its growth momentum.
Still on track. Revenue and net profit for 9MFY11 perked up by 3.8% and 10.0% y-o-y, mainly driven by: i) strong revenue growth from the personal financing (+6%) and credit card segments (+9%), and ii) a 24% y-o-y jump in other income, bolstered by higher transaction fee income (RM5.7m) arising from increased financing transaction volume. This was in tandem with its growing trade receivables, which were higher by 9.7% YTD.
Credit card segment catching up. Revenue from credit cards grew 9% owing to the company’s aggressive card recruitment efforts and enhancements in card benefits. Credit cards in circulation expanded by 20% to 135k, and we believe this number will continue to go up and reach the required breakeven base of 150k in the near term. Meanwhile, its easy payment schemes (revenue: +5%) remained the major revenue contributor, accounting for 60.2% of revenue for 9MFY11.
Asset quality intact. NPLs improved to 1.68% (1HFY11: 1.73%), thanks to prudent risk management and portfolio management to control NPLs, while CAR stood at 23.8% (FY10: 24.8%). Cost of funds hovered at around 4.4%, which is in line with our estimate of 4.5%. Maintain BUY. We expect stronger 2HFY11 results in conjunction with the upcoming major festive seasons and better consumer sentiment (Consumer Sentiment Index - 3QFY10: 115.8 vs 2QFY10: 110.4).
Maintain Buy on AEON credit with an unchanged target price of RM4.35, based on historical 2-year PE band of 8.5x over FY11 EPS.