Aeon Thana Sinsap

Aeon Thana Sinsap Plc (AEONTS) 

 

2QFY14 preview – Expect recovery QoQ after three consecutive quarters of QoQ contraction. We expect a rise of 2% YoY and 19% QoQ in 2QFY14 (May 21 – August 20) to Bt700mn (Bt2.79/share) backed by a pick-up in consumer spending upon the restoration of political calm. Farmers have been paid for their rice and since AEONTS has high exposure in the provinces at 64% of its customers, we expect QoQ loan growth to accelerate to 4-5% from 3.7% in 1QFY14, bringing 1HFY14 loan growth to 7-8% vs. our full-year forecast of 16%. The payment on pledged rice also benefited AEONTS in terms of asset quality in 2QFY14.

Upside from Nano Finance. The MoF is planning a “Nano Finance” scheme that will allow financial institutions to offer unsecured loans of no more than Bt100,000 per customer at a capped interest rate of 36% per annum. AEONTS is very interested in this lower income market and with the interest rate pegged at 36% - above the 28% ceiling for personal loans – entering will be feasible. We believe this provides upside risk to our forecast of 18% loan growth in FY2015 and FY2016.     

Easing credit cost. Despite the slowing economy, credit cost (provisions/total loans) declined to 7.37% in 1QFY14 from 8.18% in 4QFY13 after expanding its collections center and team. AEONTS opened a new operations center in Chonburi at the end of last year, bringing total centers to five: Bangkok (1,104 seats), Had Yai (492 seats), Chiang Mai (473 seats), Khon Kaen (431 seats) and Chonburi (74 seats). AEONTS has also increased collection staff, raising the proportion to 48% from 43% of total staff. With the economy on the way to recovering, we expect a further reduction in credit cost over the rest of FY2014 and into FY2015. We forecast credit cost at 7.1% for FY2014 (vs. 7.37% for 1QFY14 and 7% for FY2013) and 7% for FY2015.

Expanding investment in CLMV subsidiaries. AEONTS will inject more capital into its subsidiaries in Cambodia, Myanmar, and Laos. Its Cambodia subsidiary will increase capital by US$6mn (US$4mn from AEONTS and US$2mn from AEON Financial Service Co., Ltd.), raising its registered capital to US$10mn and diluting AEONTS’ holding to 80% from 100%. It will inject US$1.25mn into its 100%-owned Myanmar subsidiary, raising its registered capital to US$5.5mn. Its 92.6%-owned Laos subsidiary will increase capital by LAK20bn (Bt80mn) to LAK25.52bn (Bt102mn). Its Cambodia subsidiary turned a profit of Bt18mn in FY2013 (1% contribution to AEONTS earnings). Subsidiaries in Myanmar (incorporated in November 2012) and Laos (incorporated in January 2013) ran at a loss of ~Bt9mn in FY2013. AEONTS expects its Myanmar subsidiary to start generating profit in FY2015 and its Laos subsidiary to turn profitable in FY2016. Profit at its Cambodia subsidiary is expected to skyrocket over the next several years, backed by the opening of AEONT Mall in Phnom Penh and a new branch in Siam Reap.

Maintain Buy, raise TP to Bt130 (roll over). AEONTS offers long-term promise as Thailand becomes increasingly urbanized, it enlarges its presence in CLMV and enters the “Nano Finance” scheme to offer micro financing. We raise TP to Bt130 (2.8x average BVPS for FY2014 and FY2015) as we roll valuation base over to mid-FY2015.