AEON Thana Sinsap

AEON Thana Sinsap Plc (AEONTS) 

 

We maintain Buy on AEONTS, underpinned by an undemanding valuation (10x FY2015F PER) and greater opportunities for growth. The door to growth has swung wide open with the introduction of “Nano Finance” and CLMV subsidiaries are growing strongly. Profit in FY2015 will be fuelled by faster loan growth with lower cost of funds and credit cost. 

 

4QFY14 expected to be flattish. Despite being the high season for consumer spending, transactions at AEONTS were little changed QoQ in 4QFY14 (November 21-February 20). Domestic transactions slipped QoQ, responding to the country’s sluggish domestic consumption, particularly in provincial areas. However, this was given a good offset by a robust rise in transactions in CLMV countries. Provision expense is expected to remain high in 4QFY14 as it remains cautious. We forecast a slip of 3% YoY in 4QFY14 profit but a rise of 4% QoQ to Bt589mn. 

 

The best fit for “Nano Finance”, but will not rush things. Of the listed consumer finance companies interested in Nano Finance, its leadership position in unsecured personal loans for the lower end market puts AEONTS in the best position to succeed. The expertise for most of the others is in secured loans (i.e. leasing) and they have little, if any, track record for unsecured loans. At the same time, AEONTS is not going to rush into things and will make a thorough study of this market before applying for the Nano Finance license. Once it does decide, it will first test the waters rather than just taking a leap into the deep end. Under the Nano Finance scheme, an individual is eligible for an unsecured loan for the purpose of occupational support (i.e. not for consumption). The maximum loan is Bt100,000 with interest and fee ceiling at 36% per annum. To get a license, non-bank operators must submit an application via the BoT for approval by the MoF, with approval in no more than 60 days. To be eligible, applicants must have minimum registered capital of Bt50mn with D/E not above 7x. 

 

FY2015 outlook. The company conservatively targets FY2015 net profit growth of 10% vs. SCBS forecast of 15%, driven by accelerating loan growth, falling cost of funds and easing credit cost. It expects to ease credit policy in FY2015 as the economy recovers. The most exciting growth will be from its offices in CLMV countries, particularly Cambodia and Myanmar. We forecast loan growth of 15% in FY2015F from 12% in FY2014F (not factoring in Nano Finance). Net interest margin is expected to improve as cost of funds is brought down slightly by the interest rate cut. AEONTS expects credit cost (provisions/total loans) to ease in FY2015 after making extra provisions in FY2014 to accommodate adoption of “collective approach” in FY2015. We forecast an easing in its credit cost to 7.5% in FY2015F from 8.3% in FY2014F.     

 

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 last year. In Myanmar, the awarding of banking licenses for nine foreign banks (including BBL) gives AEONTS access to bank loans as a source of funds. Prior to that, its Myanmar subsidiary had to be financed purely by equity as it was unable to obtain bank loans in Myanmar. Access to borrowing will lift growth. With no competitors, its Myanmar subsidiary should be profitable in FY2015.