Aeon Thana Sinsap (Thailand)

Aeon Thana Sinsap (Thailand) Plc (AEONTS)

- Weak economy hardly hurts 4Q13/14 earnings
AEONTS reported 4Q13/14 net profit at B607m, contracting 5.5%qoq
and 11.2%yoy but 88% above expectation. Debt provisioning increased
only 6.7%qoq, substantially lower than projected, or the credit cost of
818bp to cover the additional write-off of bad debt of B1bn in this
quarter (an increase of 12.4%qoq) and to be in line with an increase of
B1.19bn in new NPLs (before write-off). NPL to total loans at end-
FY2013 increased to 3.04%, consistent with the net loan growth of
2.4%qoq and 20.9%yoy – lower than expected mainly because of the
political situation and stricter loan issuance policy. Credit card and
leasing loans still showed good growth. NIM dropped 49bp in this
quarter. Funding cost increased along with a 3.4%qoq increase in
interest-bearing debts, mostly long-tern bonds that have higher cost. As
a result, long-term debt ratio increased to 97%, closing a risk if the
interest rate reverses to an uptrend. For a positive factor in this quarter,
on the contrary, operating expense decreased 3.5%qoq, making the cost
to income ratio drop to 41.05%, the lowest in 11 quarters. Moreover,
earnings from AEONTS’s subsidiaries both local (insurance and debt
collection businesses) and overseas also grew from last year, with B99m
difference between the company’s separate financial statement and
consolidated financial statement (three domestic subsidiaries showed
profit, while overseas subsidiaries showed both profit and loss, especially
the business in Cambodia that could show the largest net profit of B18-
19m a month at present).
- 1Q14/15 profit to weaken on seasonal effect
We revise up our earnings forecast for 2014/15-17, as shown in the
table on the next page, in order to reflect lower debt provisioning after
2013. In spite of the unfavorable domestic political situation, there is
still the hope from the overseas business, especially in Cambodia as
AEON Mall opening in the next two months will help improve the
company’s profitability. However, earnings in 1Q14/15 might decline
because it is a new school semester in which purchasing power of middle
to lower class consumers, AEONTS’s major clients, would weaken.
- Low P/E ratio, attractive dividend yield of 4-5% p.a.
We reiterate to buy AEONTS. 2014 P/E ratio is still very low at only 8.7x.
2014/15 fair value is B121 (GGM), based on ROE forecast of 23.5% and
PBV of 2.97x. Dividend yield is estimated at 4-5% p.a. on average in
2014/15-2017.