KUCHING: The current swift share price rally of Aeon Credit Service (M) Bhd (Aeon Credit) which has reached a new 52-week high of 16.18 at closing yesterday may not be sustainable.
According to the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research), Aeon Credit’s share price began to rally at beginning of this year from RM14.38 to RM16.18, witnessing 12.52 per cent increase in the last three weeks.
The research arm attributes the cause of this rally to be partly due to the group’s strong third quarter fiscal year 2017 (3QFY17) result numbers which were released last month.
“However, the results were much in line with ours and consensus’ expectations and as such while we think the rally can continue, it may not be sustainable as the current share price is already reflected in our FY18 forecast numbers,” shared the research arm.
Additionally, it seems that the group’s outlook may not look as promising as before as its consistent overall financing receivable growth is set to reduce to mid-teens but still expected to expand by double digits into FY18.
“This is on the view that rising household debt in Malaysia may curb the successfulness of loan applicants,” explained the researched arm, adding that soft demand may also limit consumers to increase their spending in discretionary goods via credit.
The rising household debt and soft demand implies a slightly lower loan growth moving ahead, which is already being reflected in the latest industry number which showcased a 7 per cent month over month (m-o-m) decrease in the loan approval rate in November 2016.
Based on this, the research arm made no change to their existing earnings forecast for Aeon Credit at this juncture, expecting a single digit growth rates of 3.4 per cent in FY17 and 7.9 per cent in FY18.
The research arm also downgraded its recommendation on the stock to ‘neutral’ as the share price of Aeon Credit has already rallied above their valuation at the beginning of the year.
The target price was maintained at RM15.82 per share.