AEONCR (5139): Déjà Vu in Earnings, Strong Growth Ahead
Summary (TL;DR):
- Research Firm: RHB Investment Bank
- Subject: AEONCR / AEONCR (5139)
- Core Rating: BUY
- Target Price / Top Picks: MYR 8.10
- One-Liner: Despite a 1QFY26 earnings miss due to higher-than-expected credit costs, AEON Credit Service maintains a BUY rating as underlying asset quality improves, signaling stronger future earnings.
Report at a Glance
RHB Investment Bank released its latest research report on AEONCR on 2025-07-09, maintaining a “BUY“ rating with a target price of MYR 8.10. The core thesis of the report is that while 1QFY26 results missed expectations due to elevated credit costs, similar to past quarters, the underlying asset quality trends are stable or improving, which is expected to lead to a moderation in credit costs and a recovery in earnings going forward.
Investment Thesis (The Bull Case)
- Point 1: Underlying asset quality indicators are showing a stable-to-improving trend, with the NPL ratio declining QoQ, suggesting that credit costs are likely to moderate from their 1QFY26 peak.
- Point 2: The group continues to demonstrate strong gross financing receivables growth, reaching MYR14.6bn (+16% YoY, +4% QoQ), which is well ahead of management’s 10% target for the year, driven by payments and personal financing.
- Point 3 / Key Beneficiaries: A healthy Loan Loss Coverage (LLC) ratio of 217% (+8ppts QoQ) provides a strong buffer, and the counter’s current valuation at sub-1x P/BV offers an attractive entry point for investors.
Potential Risks (The Bear Case)
- Risk 1: Higher-than-expected impairment allowances, particularly a spike in write-offs as seen in 1QFY26 (MYR192m), could continue to negatively impact earnings if not managed effectively.
- Risk 2: Ongoing associate losses, especially from the digital bank (MYR16m in 1QFY26), could persist and weigh on overall profitability.
- Risk 3: Weaker-than-expected receivables growth or a decline in interest margins could undermine financial performance, impacting the group’s top-line and profitability.
Financial Forecast Summary
The analyst’s financial projections for the coming years are as follows:
| Fiscal Year (YE to Feb) | FY26F | FY27F | FY28F |
|---|---|---|---|
| Revenue (RM mil) | 1,961 | 2,127 | 2,289 |
| Net Profit (RM mil) | 464 | 523 | 622 |
| EPS (sen) | 91 | 102 | 122 |
| DPS (sen) | 36 | 41 | 49 |
| Dividend Yield (%) | 6.4 | 7.3 | 8.6 |
| P/E Ratio (x) | 6.21 | 5.51 | 4.63 |
(Source: RHB Investment Bank research report)
Valuation & Target Price
| Rating | BUY |
| Last Close Price | MYR 5.64 |
| Target Price (TP) | MYR 8.10 |
| Valuation Methodology | The target price is based on a fair P/BV of 1.34x, derived from a Gordon Growth Model (GGM) with assumptions including a Cost of Equity (COE) of 12.5%, a sustainable ROE of 15.5%, and a long-term growth rate of 3.5%. This valuation also incorporates a 2% ESG premium. |
Analyst’s Conclusion
- Overall Stance: RHB maintains its “BUY” rating on AEON Credit Service, confident in an earnings recovery in the coming quarters driven by an anticipated moderation in credit costs.
- Key Catalyst/Strength: The improving trend in underlying asset quality and robust growth in financing receivables, particularly from higher-credit score customers, are significant positive drivers.
- Major Headwind/Risk: The primary concern remains the elevated credit costs, stemming from high write-offs, which have impacted recent earnings.
- What to Watch: Investors should closely monitor the trajectory of credit costs for FY26 and management’s commentary on this, alongside the group’s continued success in digital onboarding and attracting M40 income segment customers.
Disclaimer: This article is a summary and interpretation of a research report published by RHB Investment Bank on 2025-07-09. All information is for reference purposes only and does not constitute investment advice. Investors should conduct their own independent research and due diligence and assume all associated risks.
