AEON Thana Sinsap

AEON Thana Sinsap Plc (AEONTS) 

AEONTS’s key drivers for growth are firming as farm income picks up and the government provides farmer assistance and raises minimum wage across five industries. Easing cost of funds and opex will boost the bottom line. Growing contribution from CLMV supports L-T growth. AEONTS is trading at an attractive valuation of 9x PER. Buy

 

Better outlook: recovering farm income, farmer assistance measures and wage hike. We expect AEONTS’ business volume to pick up in the second half of this year, backed by the start of a recovery in farm income, plus government measures to help farmers and a rise in wages. Farm income growth returned to positive at 5% YoY in April, the first month since 2015, and we expect farm income to continue to get better as crop prices improve. Additionally, the cabinet just approved a budget of Bt45bn to help farmers via: 1) support for small business production (Bt38bn); 2) debt moratorium (Bt5.4bn) and 3) rice insurance (Bt2.1bn). It also approved a hike in minimum wage to Bt360-550/day from Bt300/day in five industries, which is expected to take effect in August. We expect loan growth to pick up from 7% in FY2015 to 8% in FY2016 and to 10% in FY2017.  

 

Rising L-T growth from big steps in Cambodia and Myanmar. Its Cambodia subsidiary started a credit card business this year and the subsidiary in Myanmar reported a profit of Bt11mn in FY2015 with faster loan growth in the next few years since it can now access bank loans as an alternative to equity after the Myanmar government gave banking licenses to foreign banks. AEONTS targets 10% revenue contribution from its CLMV subsidiaries by FY2020 from ~1% now with a 5-year CAGR of 43%. We expect strong growth in its CLMV subsidiaries to raise loan growth over time.

 

Further fall in cost on funds from credit rating upgrade. With big thanks to the prolonged low interest environment, its cost of funds is expected to fall to below 4% for the first time ever in 1QFY16 vs. 4.13% in 4QFY16 and 4.41% in FY2015. A recent upgrade in credit rating to A- will help this come down even more. We thus forecast a widening in its net interest margin of 16 bps in FY2016.

 

S-T opex tightening with L-T benefit from national e-payment. We expect opex growth to fall to 6% in FY2016 from 7% in FY2015 and 10% in FY2014, thanks to a tighter policy and no more impact from April 2015’s outsourcing of debt collection. AEONTS plans to freeze its staff count in FY2016 and has negotiated cost savings with vendors. Effective at the end of October this year, the BoT is kicking off the National e-Payment Master Plan with a new e-money transfer program called “PromptPay” which will allow money transfer for individuals by using a registered ID or phone number that is tied to a selected deposit account instead of deposit account number. The transaction fees for “PromptPay” of no more than Bt10 are well below fees on normal transactions of up to Bt120. PromptPay for transactions between companies and bill payment will be the next phase, which will benefit AEONTS in the form of lower transaction costs both for itself and its clients.   

 

Buy with good valuation on recovery mode. We see its valuation as undemanding at 9x PER and 1.7x PBV relative to 21% ROE for FY2016 with loan growth picking up, cost of funds and opex coming down and high growth potential at its CLMV subsidiaries.