KUCHING: Analysts have continued to be optimistic on the outlook on AEON Credit Service (M) Bhd’s (Aeon Credit) business, despite the group receiving additional assessments from the Inland Revenue Board (IRB).
According to the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research), following this development, management has appointed tax solicitors to take legal actions, in order to challenge the validity and legality of this notice.
“Based on previous cases, we understand that the proceedings will take at least months to conclude where the earliest period for case settlement was three months,” MIDF Research said.
Hence, the research arm expected that there would be no immediate impact to the company’s earnings at least in the near term of financial year 2018 (FY18).
While there is possibility that the outcome may conclude in the group’s favour, the research arm did not rule out the risks of payment by the full amount borne by Aeon Credit.
MIDF Research’s situational analysis showed that assuming that a lump sum payment were to take place earliest in FY19, Aeon Credit will likely see a contraction in the group’s net earnings by approximately 30 per cent.
Given that the research arm’s valuation was based on the company’s book value, the earnings contraction will drive down the FY19 book value per share (BVPS) to RM4.90 from RM5.30.
Hence, MIDF Research estimated that it would result in a fair value decrease of seven per cent to RM13.72 per share which would constitute a ‘neutral’ call.
However, at this juncture the research arm maintained its FY18 and FY19 earnings given that the length of the legal process and pending further information of the timeline of the proceeding.
Overall, MIDF Research continued to be optimistic on the outlook on Aeon Credit’s business based on the group’s value chain transformation journey.
“We note that this new development might pose a blip in its future earnings but does not detract from its earnings potential.
“Future re-rating catalyst would be the outcome of the proceedings and higher than expected future earnings (FY19 onwards),” the research arm said.
For now, MIDF Research maintained its ‘buy’ call on Aeon Credit.
Of note, on Wednesday, Aeon Credit was served with notices of additional assessment and penalties amounting to RM96.81 million for the year of assessments 2010 to 2016.
In a filing on Bursa Malaysia, Aeon Credit said the company has appointed tax solicitors and was initiating proceedings to challenge the validity and legality of said notices of additional assessment.
It is also seeking professional advise from an independent and reputable audit and tax firms on its accounting and tax treatment.