FRIDAY, March 29, 2024
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AEON Thana Sinsap

AEON Thana Sinsap

Preview 2QFY16: Catalysts for recovery in place BUY

AEON Thana Sinsap Plc (AEONTS)  

The skies are clearing for AEONTS, with farm income picking back up and wages rising, plus easing cost of funds. Rising contribution from its CLMV subsidiaries will underwrite L-T growth. We still BUY with a TP hike to Bt120.
 
2QFY16 preview. We forecast 2QFY16 (May-August) earnings of Bt615mn, up 19% QoQ on accelerating top line growth, but falling 16% YoY on the absence of last year’s one-off gain from sale of NPLs. On a QoQ basis, we expect 2QFY16 to reflect a continued pick-up in loan growth, further fall in cost of funds and stabilizing credit cost.  
 
Loan growth picking up on recovery of farm income and rising wages. We expect loan growth to recover from 7% in FY2015 to 9% in FY2016 (+2.6% YTD in 1QFY16) and 10% in FY2017, fuelled by recovering farm income and rising wages. Farm income growth turned positive in 2Q16 at 4.3% YoY followed by 19% in July and as agricultural prices rise, income will go up. We expect this to lead to a rise in AEONTS’ business volume in 2HFY2016 and FY2017. As for wages, as of August, the minimum wage in five industries was raised to Bt360-550/day from Bt300. 
 
All-time low cost of funds. Cost of funds fell 24 bps QoQ in 1QFY16 to 3.89%, its all-time low. A recent upgrade in credit rating to A- will accommodate a further easing in cost of funds. On this basis, we expect to see a widening in net interest margin of 17 bps in FY2016 and stay stable in FY2017.
 
Improving asset quality. Tightening its credit policy has led NPL ratio down for two consecutive quarters, from 3.67% in 3QFY15 to 3.34% in 4QFY15 and 2.99% in 1QFY16. We expect asset quality to continue to improve in 2HFY2016 and FY2017 as farm income and wages rise. We expect credit cost to stabilize at 7.5% in FY2016 and FY2017.
 
Insignificant impact from regulatory change for hire-purchase. The Office of the Consumer Protection Board is considering cutting the late payment charged on hire-purchase loans to 15% from the current MRR plus 10% (which works out to ~18% now). This would have an insignificant impact on AEONTS as it has a small 2% exposure to hire-purchase loans, the majority of which is extended by CLMV subsidiaries, which would not fall under the ruling in any case.  
 
Rising contribution from CLMV subsidiaries. AEONTS expects revenue from its CLMV subsidiaries to jump 47% to Bt516mn (3% of total revenue) in FY2016 and 44% to Bt741mn (4% of total revenue) in FY2017. It targets a 10% revenue contribution from its CLMV subsidiaries by FY2020 from 2% in FY2015. Its Cambodia subsidiary started offering credit cards this year and the subsidiary in Myanmar turned to a profit of Bt11mn in FY2015; loan growth will surge 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. Its Laos subsidiary will turn to profit in FY2017.  
 
Maintain Buy with a TP hike to Bt120 (1.2x mid-2017F BVPS) from Bt115, as we rolled over TP to mid-2017. AEONTS is trading at an undemanding valuation (8.5x PER and 1.6x PBV relative to 20% ROE for FY2017) and is slotted to see a pick-up in loan growth, widening NIM, and rising contribution from its CLMV subsidiaries. 
 
 

 

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