AEON Credit - BUY - 16 Apr 2008

AEON Credit Service – Sterling 4QFY08 results (Results Note)



Price: RM3.08

Target Price: RM3.70

Recommendation: BUY



· FY08 net profit was above expectations. RM33.4m net profit was above our estimate and consensus by 12% and 10% respectively, even surpassing the firm’s IPO prospectus forecast of RM30.5m. The solid FY08 result was mainly due to strong performance of the motorcycle easy payment (MEP) segment.

· YoY, 12MFY08 net profit increased by 69% on the back of a 31% increase in revenue. Revenue from the MEP segment rose by 46% aided by 14% increase in the number of MEP merchants. Net profit spiked by a sizeable 69% owing to a 51% increase in EBIT that was boosted by improved cost efficiency as shown by lower operating expenses.

· QoQ, 4QFY08 net profit increased by 20% despite a mere 5% increase in revenue. The higher net profit was due to a 14% improvement in EBIT and stabilising of finance costs aided by the CP/MTN resulting from the issuance of the RM400m CP/MTN in February 2008. NPLs remained low at 2.15% for the quarter.

· Expansion of distribution network and customer base with the addition of new outlets (suburban areas especially), introduction of new products and services (such as prepaid cards, AEON Biz for SMEs, salary deduction scheme) and potential expansion into new markets of India, Singapore and Brunei.

· FY08 final GDPS of 7.44 sen, resulting in total GDPS of 12.8 sen. This translates to a 4% gross dividend yield. Moving forward, management will maintain a dividend payout ratio policy of at least 30% of profit after tax.

· Raising our FY09 and FY10 estimates by 12% and 10% respectively to take into account higher contribution from MEP (increasing FY09 forecast growth to 30% for the division from 25% previously). Management is confident of double-digit growth in FY09 earnings, as underlying demand for consumer financing remains resilient and improved operations.

· Maintain our BUY recommendation with revised target price of RM3.70, based on 11x FY09 PER (at 20% premium to its local and regional industry average). We believe the stock deserves to trade at a premium due to the firm’s strong operational capability and capability and positive growth prospects.





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