Results Note

01 July 2016

AEON Credit Service (M) OUTPERFORM

Price: RM12.94
Within expectations Target Price: RM15.12
By Desmond Chong l cwchong@kenanga.com.my

Share Price Performance

1Q17 CNP came in within expectations. No dividend was
declared as expected. No changes to our earnings estimate.
We still like this name for its: (i) resilient earnings prospects
on healthy gross financing receivables growth of 8-9%, (ii)
decent asset quality with NPL at low 2-3% (iii) healthy CAR of
c.20%, (iv) high ROE of >20% as well as (v) decent yields of
4.9-5.2%. Moreover, valuation is also undemanding at 7.7x
FY17E PER. Maintain OP with an unchanged TP of RM15.12.
Within expectations. The group reported 1QFY17 core net profit (CNP)
of RM59.1m (-9% QoQ; +8% YoY), which made up 24% of both
ours/consensus full-year forecasts. As expected, no dividend was KLCI 1,654.08
declared under the quarter review. YTD KLCI chg -2.3%
YTD stock price chg 8.7%
YoY, 1QFY17 total income grew by 11% driven by stellar performances in
both net interest income and other operating income. Delving deeper, net Stock Information
interest income increased by 11% attributed to higher net financing Shariah Compliant No
receivables (+22%) while higher growth of operating income (+10%) was
Bloomberg Ticker ACSM MK Equity
due to stronger recovery in bad debts, better commission income from sale
Market Cap (RM m) 1,863.4
of insurance products and AEON Big loyalty programmes processing fees. Issued shares 144.0
Meanwhile at the bottomline, despite of the higher cost-to-income ratio 52-week range (H) 14.10
(CIR; of +4.4ppts to 35.9% which was due to higher OpEx) coupled with
52-week range (L) 10.78
the higher effective tax rate of 25.4% (+1.8ppts), NP still improved by 8%.
3-mth avg daily vol: 60,954
Looking at other key metrics, Net Interest Margin (NIMs) continued to Free Float 31%
decline modestly to 12.9% (-1.8ppts) dragged by lower average lending Beta 0.8
yield (-1.9ppts). Nonetheless, asset quality improved as non-performing
loan (NPL) ratio fell by 32bps to 2.42%, amid the decline in the credit Major Shareholders
charge ratio (CCR) to 5.4% (from 6.7% in 1QFY16). Annualised ROE AEON FINANCIAL SERVICE 59.7%
remained healthy at 30.5% (-2.6ppts). ABERDEEN 5.2%
Meanwhile on QoQ basis, 1Q17 CNP declined by 9% on (i) seasonally EPF 3.6%
softer net interest income coupled with (ii) ongoing high overhead costs as
well as (iii) higher allowance for impairment losses. Despite so, NPL ratio Summary Earnings Table
marginally improved to 2.42% (-5bps) on stable CCR, which was helped FYE Feb (RMm) 2016A 2017E 2018E
by higher net financing receivables. Net Interest Income 672.6 730.6 805.9
Other Opt Inc. 219.4 272.2 313.5
Better alternative among the NBFIs as well as the banking stocks. Total Income 892.0 1,002.8 1,119.4
While general perception is that the financial services providers are facing Pretax Profit 301.6 319.0 338.0
tougher times in growing their loan portfolios amid current economic Core NP 214.6 241.4 255.8
condition, we understand that the loan demand from its targeted Consensus NP - 242.4 259.8
customers - retail market is, in fact, still resilient. In fact, we are looking at Erngs Revision (%) - - -
gross financing receivables growth rates of 8-9% for FY17-FY18. Besides, EPS (RM) 1.49 1.68 1.78
its healthy loan growth, we also like this name for its (i) decent asset EPS Growth (%) 2.3 12.5 5.9
quality with NPL expected to hover between 2-3% (on seasonality), DPS (RM) 0.59 0.64 0.67
healthy capital adequacy ratio (CAR), which is expected to be at a BV/Share (RM) 5.45 6.49 7.59
comfortable 20% vs BNMs capital ratio requirement of 16%, (iii) higher ROE (%) 22.6 21.3 19.8
ROE of >20% in FY17E-FY18E as well as decent dividend yields of 4.9%- PER (x) 8.7 7.7 7.3
5.3% (based on DPR of 38%); which are better than other NBFIs as well Price/Book (x) 2.4 2.0 1.7
as most of the banking stocks. Dividend Yield (%) 4.6 4.9 5.2
Maintain OUTPERFORM with an unchanged TP of RM15.12. We made
no changes to our earnings estimate. Hence, our TP remained at
RM15.12, which is still based on a targeted 9.0x FY17E PER which is at
+0.5SD above its 5-year mean forward PER.
Risks to our call include (i) steeper margin squeeze, (ii) slower-than-
expected financing receivable growth and (iii) worse-than-expected
deterioration in asset quality.

PP7004/02/2013(031762) Page 1 of 4
 AEON Credit Service (M) Results Note
01 July 2016

Results Highlight

Y/E : 28-Feb (RMm) 1Q17 4Q16 QoQ Chg. 1Q16 YoY Chg. 3M17 3M16 YoY Chg.
Net interest income 181.9 181.3 0.3% 163.5 11.3% 181.9 163.5 11.3%
Other operating income 60.4 57.4 5.3% 55.1 9.7% 60.4 55.1 9.7%
Total income 242.3 238.6 1.5% 218.6 10.9% 242.3 218.6 10.9%
Operating expenses (86.9) (80.9) 7.4% (68.8) 26.4% (86.9) (68.8) 26.4%
Allowance for impairment losses (71.2) (67.2) 6.1% (73.5) -3.1% (71.2) (73.5) -3.1%
Pre-tax profit 84.1 90.6 -7.1% 76.3 10.3% 84.1 76.3 10.3%
Taxation (21.4) (22.4) -4.6% (18.0) 18.7% (21.4) (18.0) 18.7%
Net profit 62.7 68.1 -7.9% 58.2 7.7% 62.7 58.2 7.7%
Core Net profit 59.1 64.9 -8.9% 54.7 8.2% 59.1 54.7 8.2%
EPS (sen) 41.1 45.1 -8.9% 38.0 8.2% 41.1 38.0 8.2%
DPS declared (sen) - 29.6 - - -

Net financing receivables 5,682.9 5,404.9 5.1% 4,670.7 21.7% 5,682.9 4,670.7 21.7%
BV/share (RM) 5.93 5.45 8.8% 5.10 16.3% 5.93 5.10 16.3%

Est. Annualised Net Interest Margin 12.9% 13.6% 14.7% 12.9% 14.7%
Cost-to-Income Ratio 35.9% 33.9% 31.5% 35.9% 31.5%
Effective Tax Rate 25.4% 24.8% 23.6% 25.4% 23.6%
Est. Annualised Credit Charge Ratio 5.4% 5.3% 6.7% 5.4% 6.7%
Est. Annualised ROE 30.5% 34.9% 33.1% 30.5% 33.1%

Source: Company, Kenanga Research

Fwd PER Band Fwd PBV Band

PBV (X)
16.0 PER (X)
5.0
14.0

12.0 4.0

10.0
3.0
8.0

6.0 2.0

4.0
1.0
2.0

0.0
0.0
Jan-11
Mar-11
May-11
Jul-11
Sep-11
Nov-11
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Nov-12
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
Mar-15
May-15
Jul-15
Sep-15
Nov-15
Jan-16
Mar-16
May-16

Jan-11
Mar-11
May-11
Jul-11
Sep-11
Nov-11
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Nov-12
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
Mar-15
May-15
Jul-15
Sep-15
Nov-15
Jan-16
Mar-16
May-16
FWD PER S.Dev +2 S.Dev +1 5-Year Average S.Dev -1 S.Dev -2
FWD PBV S.Dev +2 S.Dev +1 5-Year Average S.Dev -1 S.Dev -2
Source: Bloomberg, Kenanga Research

PP7004/02/2013(031762) Page 2 of 4
AEON Credit Service (M) Results Note
01 July 2016

Peer Comparison
Price Est.
Fwd Net Profit Growth Target Price
(30 Jun Mkt Cap PER (x) Div. P/BV Net Profit (RMm)
ROE (%)
NAME 2016) Yld.

(RM) (RMm) FY14/15 FY15/16 FY16/17 (%) (%) (x) FY14/15 FY15/16 FY16/17 FY15/16 FY16/17 (RM) Rating

Banking
Affin Holdings 2.12 4,119.1 11.3 10.0 9.9 4.0 4.5 0.5 365.5 412.2 417.4 12.8 1.3 2.23 MP
Alliance Financial Group 4.03 6,145.2 11.6 11.8 11.3 4.2 10.6 1.2 530.8 522.1 545.0 -1.6 4.4 4.04 MP
AMMB Holdings 4.44 13,383.0 8.3 10.3 9.3 4.6 9.2 0.8 1,617.5 1,302.2 1,437.3 -19.5 10.4 4.63 MP
BIMB Holdings 3.90 6,195.8 11.3 10.5 10.7 3.8 16.6 1.7 547.5 590.2 577.7 7.8 -2.1 4.18 MP
CIMB Group 4.37 38,145.1 13.4 11.7 10.1 3.5 7.7 0.9 2,849.5 3,261.5 3,786.2 14.5 16.1 4.87 OP
Hong Leong Bank 13.18 27,047.5 12.1 15.1 13.4 3.1 9.9 1.4 2,233.1 1,795.0 2,012.7 -19.6 12.1 13.45 MP
Malayan Banking 8.14 81,471.3 11.9 12.9 11.8 5.4 10.0 1.2 6,835.9 6,335.1 6,895.2 -7.3 8.8 9.07 MP
Public Bank 19.40 74,913.0 14.8 15.0 14.2 2.8 15.8 2.4 5,062.2 4,993.0 5,287.7 -1.4 5.9 20.05 MP
RHB Bank 5.12 20,531.4 14.2 11.0 9.5 2.0 8.6 1.0 1,448.4 1,873.5 2,170.3 29.3 15.8 6.51 MP
Mkt. Cap Weighted Average 271,951.4 12.9 13.1 12.0 3.8 11.2 1.5 -0.9 9.5

Non-Bank Money Lender

AEON Credit Service (M) 12.94 1,863.4 8.2 7.7 7.3 4.9 21.3 2.0 214.6 241.4 255.8 12.5 6.0 15.12 OP
Malaysia Building Society 0.72 4,175.1 16.2 27.4 20.8 1.4 2.6 0.5 257.6 152.6 200.3 -40.8 31.3 1.11 UP
Mkt. Cap Weighted Average 6,038.5 13.7 21.3 16.7 2.5 8.4 1.0 -26.4 23.5

Source: Bloomberg, Kenanga Research

PP7004/02/2013(031762) Page 3 of 4
 AEON Credit Service (M) Results Note
01 July 2016

Stock Ratings are defined as follows:

Stock Recommendations

OUTPERFORM : A particular stocks Expected Total Return is MORE than 10% (an approximation to the
5-year annualised Total Return of FBMKLCI of 10.2%).
MARKET PERFORM : A particular stocks Expected Total Return is WITHIN the range of 3% to 10%.
UNDERPERFORM : A particular stocks Expected Total Return is LESS than 3% (an approximation to the
12-month Fixed Deposit Rate of 3.15% as a proxy to Risk-Free Rate).

Sector Recommendations***

OVERWEIGHT : A particular sectors Expected Total Return is MORE than 10% (an approximation to the
5-year annualised Total Return of FBMKLCI of 10.2%).
NEUTRAL : A particular sectors Expected Total Return is WITHIN the range of 3% to 10%.
UNDERWEIGHT : A particular sectors Expected Total Return is LESS than 3% (an approximation to the
12-month Fixed Deposit Rate of 3.15% as a proxy to Risk-Free Rate).

***Sector recommendations are defined based on market capitalisation weighted average expected total
return for stocks under our coverage.

This document has been prepared for general circulation based on information obtained from sources believed to be reliable but we do not
make any representations as to its accuracy or completeness. Any recommendation contained in this document does not have regard to
the specific investment objectives, financial situation and the particular needs of any specific person who may read this document. This
document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees.
Kenanga Investment Bank Berhad accepts no liability whatsoever for any direct or consequential loss arising from any use of this document
or any solicitations of an offer to buy or sell any securities. Kenanga Investment Bank Berhad and its associates, their directors, and/or
employees may have positions in, and may effect transactions in securities mentioned herein from time to time in the open market or
otherwise, and may receive brokerage fees or act as principal or agent in dealings with respect to these companies.

Published and printed by:

KENANGA INVESTMENT BANK BERHAD (15678-H)

8th Floor, Kenanga International, Jalan Sultan Ismail, 50250 Kuala Lumpur, Malaysia Chan Ken Yew
Telephone: (603) 2166 6822 Facsimile: (603) 2166 6823 Website: www.kenanga.com.my Head of Research

PP7004/02/2013(031762)