AEON Thana Sinsap

AEON Thana Sinsap  Plc (AEONTS)
Raised provision forecast. To reflect the concerns regarding the rapid rise in Thailand’s household debt and the lighter pockets of AEONTS’ clients, we lifted our credit cost forecast by 20 bps for FY2013F-2015F to 6.25%, which raises our provision forecast ~4% and cuts our earnings forecast by ~5%. AEONTS also has been seeing a slight deterioration in debt collection on personal loans (revolving cash) in the past 2-3 months. This has led it to gradually tightened credit standards, particularly for personal loans. Nonetheless, its FY2013F-2015F credit cost is expected to be well below historical credit cost (averaged 8.76% for the past ten years, 6.9% in FY2012) upon better debt collection after it took over ACS Servicing (Thailand), a debt collection company, in August 2012, as well as benefit from the minimum wage hikes.
2QFY13 preview: Expect good earnings. We forecast 2QFY13 (May 21-August 20) to grow 69% YoY and 4% QoQ to Bt593mn. A snap call to management guided to:
1) continued QoQ growth in top lines, mainly credit cards; 2) a QoQ rise in provision expense but stable credit cost; and 3) a QoQ increase in opex on more staff, mainly for debt collection and a new branch in Chonburi. 
Upside risk from AEC. Its Cambodia subsidiary is already in the black, though profit is still small (Bt1-2mn per month) in 2QFY13. We expect earnings at the Cambodia subsidiary to skyrocket over the next several years, backed by an extraordinarily high loan yield (flat 2% per month), a plan to open AEONT Mall and a new branch in Siam Reap. Operations in Cambodia also do well off the strengthening US$ as loans are extended in US$. Established in 2012, its two subsidiaries – one in Myanmar (with Bt2.1mn paid-up capital) and another one in Laos (with Bt30.4mn paid-up capital) opened their doors in 2QFY13.
Cut TP but maintain Buy. We cut target price to Bt100 (2.6x average 2013F and 2014F BVPS, and stable 26% ROE) from Bt120 to reflect our hike in provision forecast and rising asset quality risk. However, we maintain Buy as we believe the current share price (PBV of 2.4x for FY2013F and 2.0x for FY2014F vs. high 26% sustainable ROE) reflects an overdone concern on household debt.