AEON Credit - BUY

AEON Credit Service (M)- 1QFY10 results in-line with expectations (Result Note)

Price: RM3.02
Target Price: RM4.05
Recommendation: BUY

· AEON Credit Service’s (ACSM) 1QFY10 net profit of RM12.2m was within expectations, comprising 20% of our FY10 net profit forecast of RM60.9m and 23.1% of consensus’ estimated RM52.7m. ACSM’s earnings is seasonally stronger in 2H. The motorcycle easy payment (MEP) segment continued to be the star performer, registering approximately 30% sales growth. However all segments - general easy payment (GEP), credit card (CC) and personal financing (PFS)- turned in double-digit sales growth.

· YoY, 1QFY10 net profit rose by 20% on the back of a 22% increase in revenue. Total net receivables increased by 22% YoY to RM877.9m, led by strong double-digit growth in the MEP and GEP divisions. Pretax profit rose by 20% due to improved operational efficiency and lower NPL ratio of 1.85%.

· QoQ, 1QFY10 net profit declined by 10% in spite of revenue having increased by 1%. EBIT declined by 9% due to higher operating expenses associated with new branches. ACSM opened 7 new marketing offices in smaller towns in Peninsula Malaysia in March 2009 to widen distribution network. Pretax profit declined by 11% in line with lower EBIT.

· FY10 and FY11 earnings estimates unchanged. We anticipate net profit growth of 26% in FY10 based on net receivables growth of 24%.

· Maintain BUY recommendation with new target price of RM4.05 based on 8x PER applied to FY10 EPS of 50.8 sen. ACSM’s growth in FY10 will come from the easy payment and credit card segments. The firm will be focusing on launching AEON-Biz (that offers financing of under RM50,000 to SMEs for office automation, and equipment) nationwide and introducing a joint J-Card and credit card by end-FY10.