AEON Thana Sinsap

AEON Thana Sinsap Plc 

 

AEONTS’ earnings growth is nearing recovery, backed by a pickup in loan growth, lower provisions, and tightened opex. Its expansion into CLMV will gain strength next year with a 5-year CAGR revenue growth target of 43%, lifting income contribution to 10% by FY2020 from 1% now. AEONTS is still trading at a discount to its excellent 23% ROE and an expected 12% earnings growth in FY2015 and FY2016. 

Further strides in Cambodia and Myanmar next year. Its Cambodia subsidiary just obtained a Specialized Bank License in October and will start a credit card business in January 2016. AEONTS’ 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 last year, which will allow more rapid expansion. With few competitors, its Myanmar subsidiary is already profitable this year. AEONTS targets 10% revenue contribution from its CLMV subsidiaries by FY2020 from ~1% now with a 5-year CAGR revenue growth target of 43%.   

Loan growth picking up. As 67% of its 2.25mn active customers are low-income provincial dwellers, AEONTS is poised to benefit from the Bt136bn upcountry stimulus measures in 2HFY15. In 1HFY15 loan growth was 4%. Starting August 2015, AEONTS joined with Government Savings Bank (GSB) to offer cash withdrawal service via “AEON Your Cash” through GSB’s 6,000 ATMs. We expect this to help accelerate its loan growth in 2HFY15 to achieve our forecast of 9% in FY2015 vs. 7% in FY2014.   

Stabilizing asset quality. Although we expect provision expenses to increase slightly HoH in 2H15, we expect full-year provisioning to be slightly below FY2014’s Bt5bn, as this year will not have the Bt400mn extra provisions to support the adoption of tougher provisioning standards under the collective approach. Asset quality is under control with a small 10 bps QoQ rise in NPL ratio to 3.5% in 2QFY15. LLR coverage is stable at 120% at 2QFY15.  

Tightening opex. AEONTS’s opex growth is expected to continue slowing in 2HFY15 as a result of the full benefit from outsourcing debt collection starting April this year and its tighter policies. The company has negotiated cost savings with vendors and tightened telephone call expenses. We expect FY2015 opex growth to fall to 8% for FY2015 from 10% in FY2014.   

3QFY15 preview.  We forecast AEONTS’ 3QFY15 earnings (21 August -20 November) to increase 23% YoY and slip 4% QoQ to Bt700mn. We expect a gradual recovery in loan growth driven by the government’s upcountry stimulus measures. We expect provision expense to increase slightly QoQ in line with its NPL trend, partly due to a change in debt collection method to comply with the more stringent regulations. We expect a sizable gain from the sale of written-off NPLs worth Bt1.5bn in 3QFY15, though less than the Bt190mn gain from the sale of Bt2.63bn written-off NPLs in 2QFY15.   

Trading at a discount to ROE. Although its share price rose 22% over the past three months, AEONTS is still trading at an undemanding valuation of 2x PBV for FY2015, suggesting a discount to its 23% ROE. In terms of PER, it is trading at 9x FY2015 and 8x FY2016, a discount to the expected12% EPS growth per year.