Stock Name: AEONCR
Company Name: AEON CREDIT SERVICE (M) BHD
Research House: OSK
AEON Credit Service (M) Bhd
(April 7, RM4.12)
Initiating coverage with a buy at RM3.93 with target price of RM4.95: Riding on a solid track record, low non-performing loan (NPL) ratio, a growing customer base and attractive dividend yield, we are initiating coverage on AEON Credit with a buy recommendation.
Listed on the Bursa Malaysia Main Board on Dec 12, 1997, AEON Credit started off by providing easy payment schemes for the purchase of consumer durables through appointed merchants and retail stores. Its four main revenue contributors are motorcycle easy payment, general easy payment, personal financing and credit card.
In the past two years, the group has been registering a solid revenue and net profit compound annual growth rate (CAGR) of 26.9% and 57.3% respectively.
Going forward, we expect earnings to grow in tandem with its growing customer base and stronger consumer spending. Via a prudent lending policy and effective credit management, it has managed to keep NPLs at below 2%.
Although management has indicated that credit card application growth slowed down slightly after a service tax was imposed on credit cards, this is not a concern as AEON Credit's credit card business has yet to contribute to its bottom line as it is still struggling to break even.
Instead, we believe its earnings growth momentum is on track and there could be a re-rating on the stock when investors realise that its fundamentals are intact despite the imposition of the service tax.
AEON Credit's 3QFY10 net gearing ratio is still relatively high at 302.1% compared with 191.2% for RCE Capital Bhd.
However, we believe this is a norm in the micro-financing business as players are unable to tap into bank deposits to finance their lending activities. That said, the company's risk weighted capital ratio, which has been hovering above 20%, exceeds Bank Negara's requirement of 16% for the credit card business.
Applying a historical two-year price earnings (PE) band of 8.5 times over FY11 earnings per share (EPS), we derive a target price of RM4.95. We believe this is justifiable based on the company's attractive dividend yield, earnings track record, low NPLs, high profit margin and increasing demand for micro-financing among the younger generation. - OSK Research, April 7
This article appeared in The Edge Financial Daily, April 8, 2010.
Company Name: AEON CREDIT SERVICE (M) BHD
Research House: OSK
AEON Credit Service (M) Bhd
(April 7, RM4.12)
Initiating coverage with a buy at RM3.93 with target price of RM4.95: Riding on a solid track record, low non-performing loan (NPL) ratio, a growing customer base and attractive dividend yield, we are initiating coverage on AEON Credit with a buy recommendation.
Listed on the Bursa Malaysia Main Board on Dec 12, 1997, AEON Credit started off by providing easy payment schemes for the purchase of consumer durables through appointed merchants and retail stores. Its four main revenue contributors are motorcycle easy payment, general easy payment, personal financing and credit card.
In the past two years, the group has been registering a solid revenue and net profit compound annual growth rate (CAGR) of 26.9% and 57.3% respectively.
Going forward, we expect earnings to grow in tandem with its growing customer base and stronger consumer spending. Via a prudent lending policy and effective credit management, it has managed to keep NPLs at below 2%.
Although management has indicated that credit card application growth slowed down slightly after a service tax was imposed on credit cards, this is not a concern as AEON Credit's credit card business has yet to contribute to its bottom line as it is still struggling to break even.
Instead, we believe its earnings growth momentum is on track and there could be a re-rating on the stock when investors realise that its fundamentals are intact despite the imposition of the service tax.
AEON Credit's 3QFY10 net gearing ratio is still relatively high at 302.1% compared with 191.2% for RCE Capital Bhd.
However, we believe this is a norm in the micro-financing business as players are unable to tap into bank deposits to finance their lending activities. That said, the company's risk weighted capital ratio, which has been hovering above 20%, exceeds Bank Negara's requirement of 16% for the credit card business.
Applying a historical two-year price earnings (PE) band of 8.5 times over FY11 earnings per share (EPS), we derive a target price of RM4.95. We believe this is justifiable based on the company's attractive dividend yield, earnings track record, low NPLs, high profit margin and increasing demand for micro-financing among the younger generation. - OSK Research, April 7
This article appeared in The Edge Financial Daily, April 8, 2010.
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