AEON Thana Sinsap

AEON Thana Sinsap Plc 

 

We maintain Buy on AEONTS, grounded in its 1) undemanding valuation, 2) earnings recovery fuelled by a pick-up in loan growth with lower provisions and opex growth, 3) benefits from the upcountry stimulus package and 4) high growth opportunity in CLMV.  

2QFY15 preview. AEONTS is planning to release 2QFY15 (May 21-August 20) on September 23. We forecast flat earnings YoY but growth of 30% QoQ to Bt680mn. According to management guidance, 2QFY15 will reflect 1) seasonal pick up in personal loans, 2) improving NIM driven by rising loan yield on a seasonal shift toward personal loans, 3) QoQ stable provisions with stabilizing asset quality, 4) flattish opex.  

Lower provisions. After booking Bt400mn extra provisions in FY2014 to support the adoption of tougher provisioning standards under the collective approach, AEONTS plans to reduce provision expense to ~Bt4.7bn in FY2015 from Bt5bn in FY2014. We thus cut our provision forecast for FY2015F by 8% to Bt4.8bn (equivalent to 7.5% credit cost). 

Easing opex in 2HFY15. AEONTS expects opex to come down in 2HFY15 as a result of the full benefit from outsourcing debt collection starting April this year and its tighter policy. We expect FY2015 opex growth to fall to 6% for FY2015 from 10% in FY2014.   

Greater loan growth in FY2015. AEONTS maintains its target FY2015F loan growth of 10% (vs. 3% for FY2014) for personal loans and 8% (vs. 14% in FY2014) for credit card loans. This translates to a recovery in total loan growth to 9% in FY2015 from 7% in FY2014. The company plans to ease back on its credit standards this year after building a comfortable provision cushion last year.    

Benefiting from upcountry stimulus measures. As 67% of its 2.25mn active customers are low-income provincial dwellers, AEONTS is poised to benefit from the Bt136bn upcountry stimulus measures approved by the cabinet early in September. The measures comprise: 1) Bt60bn 7-year loans disbursed through Village Funds with a 2-year grace period, 2) Bt36bn allocated to sub-districts for small-scale construction projects and Bt40bn to accelerate budget disbursement for small projects. We expect the program to boost private consumption substantially in late 3Q15 to 4Q15. Disbursement of 70% of this in 4Q15 would raise private consumption expenditure roughly 4.5%YoY. This program aims at boosting income for farmers and other low-income people and will be good for companies with exposure to rural consumption. (See our strategy note on September 03, 2015). 

Stepping stones in Cambodia and Myanmar next year. Its Cambodia subsidiary plans to launch a credit card product next year. Its Myanmar subsidiary will start using bank loans as a source of funds in an alternative to equity next year after the Myanmar government gave banking licenses to nine foreign banks (including BBL) last year, which will allow more rapid expansion. With no competitors, its Myanmar subsidiary is already profitable this year. Profit at its Cambodia subsidiary will skyrocket for at least the next three years from Bt28mn in FY2014.