Aeon Thana Sinsap

Opportunities to grow abound for AEONTS, from “nano finance” and rising civil servant wages here at home to greater expansion into CLMVs. Delinquencies have peaked and credit costs are coming down. We suggest overlooking the 3QFY14 hiccup and focus on the positives and keep it as a BUY with an unchanged TP of Bt130. 

“Nano finance” opens new doors. The cabinet approved what it tags a “nano finance” scheme on December 9 that it hopes to kick off in February. This is designed to offer unsecured loans by qualified financial institutions of no more than Bt200,000 per customer at a capped interest rate of 36% per annum. To qualify, the institution must have a minimum paid-up capital of Bt50mn and be approved by the BoT. AEONTS is interested in this lower income market and with the interest rate pegged at 36% - above the 28% ceiling for personal loans – entry is feasible. We believe this provides upside risk to our forecast of 18% loan growth in FY2015 and FY2016.     

Growing with wages. AEONTS sees the rise in average income and low unemployment as giving it room to expand its customer base. Since its target group is employees with a monthly income of above Bt5,000, this puts it squarely in the forefront to benefit from the hike in civil service pay – which is targeted at those on the lower end of the pay scale. Those with monthly income of Bt5,001-15,000 (its target group for personal and hire-purchase loans) grew to 18mn in 2013 from 17mn in 2011. In the same period, those with monthly income of Bt15,001-30,000 (its target group for credit cards) increased to 4mn in 2013 from 3mn in 2011. 

Credit cost coming down. Delinquencies for AEONTS peaked in September, with an NPL ratio of 4% (vs. 3.3% at 2QFY14), after which NPLs began to step down. AEONTS made extra provisions to accommodate a change in provisioning policy to “collective approach” in 2QFY14 and it expects this to reduce provisioning QoQ to ~Bt1.2bn in 3QFY14 (+17% YoY, -15% QoQ) from Bt1.44bn in 2QFY14. Aided by economic recovery and no repeat of the extra provisions for the accounting change, credit cost should come down from 7.8% in FY2014 to 7.1% in FY2015. 

Sun rising on CLMV subsidiaries, particularly in Cambodia and Myanmar. Profit at its Cambodia subsidiary will skyrocket for at least the next several years after the opening of AEONT Mall in Phnom Penh in June this year. In Myanmar, the awarding of banking licenses for nine foreign banks (including BBL) this year will give AEONTS access to bank loans as a source of funds. Its Myanmar subsidiary is now financed purely by equity as it is unable to obtain bank loans in Myanmar and access to borrowing will foster growth. With no competitors, its Myanmar subsidiary should be profitable in FY2015. 

3QFY14 preview: Expect falling earnings, despite top line recovery. Business activities came back slightly QoQ in 3QFY14 (August 21-November 20), but we expect its bottom line to slip 5% YoY on higher provisions from the tougher policy and higher NPLs and 9% QoQ without a comparative non-recurring Bt479mn gain to Bt611mn.  

Maintain Buy. Growth opportunities are growing, with enlargement in its target client base, the “nano finance” scheme and outstanding growth at CLMV subsidiaries.