KUALA LUMPUR (April 12): Kenanga Investment Bank Bhd has maintained its 'outperform' call on Aeon Credit Service (M) Bhd, with a target price of RM8.55.

In a note on Friday, the research firm said it continues to believe in Aeon Credit’s fundamentals, as they stand out against conventional banking institutions with return on equity prospects of 15% with more modest dividend yields.

“Aeon Credit’s guidance for the financial year ending Feb 28, 2025 (FY2025) appears softer, with inflationary concerns over its lower-income customer demographics, albeit reflecting improvements in approvals and collections. 

“Despite achieving 13% financing growth in FY2024, Aeon Credit is earmarking a 10% growth in FY2025,” Kenanga said.

It believes that the group could just be opting to be prudent, given potential inflationary risks in the second half of 2024.

“The group continues to eye opportunities in the middle 40% household income group with its new digital onboarding process for personal financing able to quicken turnaround time,” said Kenanga.

The group implemented its merchant management framework in October 2023 to improve the quality of new motor and objective financing accounts with apparent success, according to the note.

This is paired with artificial intelligence credit scoring and pre-assessment mechanisms, which could be attributed to improving non-performing loans in the fourth quarter ended Feb 29, 2024 (4QFY2024) of 2.57% (4QFY2023: 2.89%), the note added.

Kenanga said the group is working towards consolidating its various services into a single platform, dubbed the “Aeon Living Zone”, which aims to connect its Aeon Mall platform, Aeon Credit and the upcoming digital bank, Aeon Bank.

The note said that while this platform may take a longer period to develop, the group aims to launch Aeon Bank by May.

The group reported the 50%-owned bank's first impact on its profit and loss at RM16.6 million in associate losses. Aeon Bank could continue to incur up to RM120 million to RM140 million in fixed expenses per year, as it progressively builds up its presently lacking revenue streams.

“With support from the group’s ecosystem, it is hoped that Aeon Bank could tap into a captive client base to accelerate its expansion.

“The group is targeting to break even within the bank's first four years of operations,” Kenanga said.

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