AEON Thana Sinsap

AEON Thana Sinsap Plc (AEONTS)

 

We maintain Buy on AEONTS, underpinned by an undemanding valuation (8.7x FY2015F PER), robust growth at CLMV subsidiaries and moderate 12% FY2015F earnings growth fuelled by faster loan growth with lower cost of funds and credit cost. 

1QFY15 preview. We expect AEONTS’ earnings to grow 4% YoY and 3% QoQ to Bt609mn in 1QFY15 (February 21-May 20). Despite flat business volume QoQ, easing provisions will underwrite a QoQ earnings recovery in 1QFY15. 

Loan growth picking up. AEONTS targets FY2015F loan growth of 10% (vs. 3% for FY2014) for personal loans and 8% (vs. 14% for FY2014) for credit card loans. We maintain our 2015F loan growth at 10% for 2015F vs. 7% for 2014, supported by a pick-up in consumption and a robust rise in contribution from its CLMV ventures. The company plans to loosen its credit strings this year in response to the economic recovery after building up a comfortable provision cushion last year. 

Continued easing in credit cost. AEONTS expects to continue stepping provisions down in 2015F: it has been able to keep NPLs under control and also made extra provisions earlier. AEONTS booked Bt400mn extra provisions in FY2014 to support the adoption of tougher provisioning standards under the collective approach. It now plans to lower provision expense to ~Bt4.7bn (SCBS forecasts Bt4.8bn) in FY2015 from Bt5bn in FY2014, reducing credit cost to 7.5% in FY2015 from 8.5% in FY2014. 

Benefiting from falling interest rates. AEONTS has benefited from a 25 bps cut in policy rates and a 10-13 bps cut in lending rates in 2Q15, which lowers its cost of funds. S-T borrowings – which immediately benefit from interest rate cuts - account for 30% of total borrowing for AEONTS. 

Outsourcing debt collection to ease opex. Starting mid-April this year, AEONTS has outsourced debt collection to a subsidiary to eliminate duplicate expenses. AEONTS expects this to cut back on opex from FY2Q15. We expect a deceleration in opex growth to 7% in FY2015 from 10% in FY2014.  

Credit card in Cambodia. Its Cambodia subsidiary plans to launch a credit card this year. The expansion into the credit card business and expansion of AEON Mall in Cambodia will underwrite a surge in the Cambodia subsidiary’s net profit for the next few years from Bt28mn in FY2014. In Myanmar, the awarding of banking licenses to nine foreign banks gives AEONTS access to bank loans as a source of funds rather than funding purely by equity, as was necessary in the past, fostering growth. With no competitors, its Myanmar subsidiary is already profitable this year.  

No rush for nano-finance. AEONTS is not going to rush into nano-finance, preferring to first make a thorough study and wait for better timing, i.e. a more solid economic recovery. AEONTS is not sure whether the 36% interest rate cap justifies the high risk of the nano-finance segment, as the interest rate cap for nano finance does not allow it to charge a debt collection fee, unlike the 28% interest cap for personal loans, on which operators are allowed to charge a debt collection fee. As AEONTS sees plenty of open doors to grow in the personal loans segment, it is in no rush to get into nano-finance.