KUCHING: Aeon Credit Services (M) Bhd’s (Aeon Credit) earnings growth prospects remain challenging moving into 2015.
AllianceDBS Research Sdn Bhd (AllianceDBS Research) in a report yesterday said the softer consumer loan growth could pose a downside risk to Aeon Credit’s earnings growth.
The research firm opined Bank Negara’s tighter measures on consumer financing (personal loans and credit cards) could soften the robust growth momentum in this segment.
It further opined, the potential tighter measures on consumer financing could be a key risk to Aeon Credit earnings growth.
Thus, the research firm remains cautious on the possibility of the central bank imposing further tightening measures on consumer financing in an attempt to curb excessive household indebtedness.
In the meantime, AllianceDBS Research observed that Aeon Credit’s non-performing loans (NPL) shot up to a multi-year high in its financial results for the second quarter of financial year 2015 (2QFY15) for the period ended last August.
Correspondingly, it noted Aeon Credit’s share price has also fallen by 29 per cent to RM11.66 as of December 11 since the release of its 2QFY15 financial results due to concerns over asset quality risk which was further aggravated by the weaker outlook on the domestic economy.
Thus, AllianceDBS Research said it is monitoring Aeon Credit’s NPL ratios as the research firm foresees any further asset quality deterioration could pose downside risk to the company’s earnings growth.
The research firm also expects the operating environment going forward will remain tough due to softer consumer sentiment.
On a positive side, AllianceDBS Research expects Aeon Credit’s motorcycle easy payment (MEP) and car easy payment (CEP) which account for about 50 per cent of Aeon Credit’s loan book to continue to drive the company’s loan growth.
The research firm said although the MEP growth moderated to six per cent quarter-on-quarter (q-o-q) in 2QFY15 against nine per cent in 1QFY15, it observed the motorcycle registrations have picked up and this should improve the company’s loan momentum going forward.
AllianceDBS Research noted the easy payment scheme provided by Aeon Credit will continue to drive its earnings growth due to demand for micro financing, a segment which is hardly serviced by the commercial banks.
The research firm also noted Aeon Credit has put in place a private debt securities programme to continue its business growth traction and maintain its capital adequacy level above Bank Negara’s requirement.
Nonetheless, due to less rosy outlook for the consumer sector next year, AllianceDBS Research has downgraded Aeon Credit’s earnings projection for FY15 to FY17 by seven to 19 per cent due with the assumption of higher credit cost and lower yield for the company.