• Maintain BUY, with new MYR8 TP from MYR8.40, 31% upside and 6% FY26F (Feb) yield. AEON Credit Service's 9MFY25 results broadly met expectations, albeit dragged by still-elevated credit costs. We expect a stronger 4QFY25 driven by robust financing demand, while credit costs could also moderate in line with historical trends. We continue to like ACSM for its strong growth outlook, while the current valuation also appears undemanding.
• Results review. ACSM's 3QFY25 net profit of MYR62.1m (-27% YoY, -13% QoQ) brought the 9MFY25 figure to MYR239.6m (-20% YoY) - this formed 66% and 60% of our and consensus full-year estimates. For 9M, total operating income growth continued its strong momentum, up 14% YoY from strong NII (+15%) and non-II (+6%), though this was offset by a 20% increase in opex. The main drag on profit, however, came from impairment allowances, where credit costs reached 5.0% in 3QFY25 (2QFY25: 4.4%, 3QFY24: 4.7%) - this brought the 9M average to 4.2% (9MFY24: 3.7%). Elsewhere, associate losses during the quarter moderated to MYR15.2m (2QFY25: MYR18.7m), with total losses for 9M of MYR45.5m falling within management's MYR60-70m guided range. All in, 9MFY25 ROE stood at 12.0%, down from the 16.5% achieved in 9MFY24 and slightly below management's target of 13% for the year.
• Still recording strong financing growth. ACSM's gross financing receivables stood at MYR13.7bn in Nov 2024, up 15% YoY and 4% QoQ. Growth was broad-based, but most apparent in credit cards (+18% YoY, +7% QoQ) and personal financing (+21% YoY, +7% QoQ). On a YTD (annualised) basis, growth of 16% is ahead of management's +10% target for the year - we think this is likely to be surpassed, especially with the revisions to the minimum wage and civil servants' remuneration. Separately, management sees minimal impact arising from the proposed abolition of the Rule of 78 for interest calculation on personal finance products, as ACSM presently uses the effective interest rate model for interest income computation.
• Asset quality still resilient. While credit costs saw a slight QoQ spike in 2QFY25, we learnt this was largely attributable to higher BAU provisions (in line with receivables growth), as write-offs were largely stable QoQ (and down YoY). Delinquency trends also appear intact, with the NPL ratio declining 0.3ppts YoY to 2.4% (flat QoQ), while collection ratios were also stable. With the rise in provisions, the LLC ratio improved marginally to 231%, from 229% - recall that management had previously mentioned this is a comfortable level for the group.
• We lower our FY25F-27F earnings by 4%, 3% and 3% as we factor in higher credit cost assumptions, in line with the 9MFY25 performance. Our TP drops to MYR8 (from MYR8.40), and includes an unchanged 2% ESG premium.

Source: RHB Securities Research - 20 Dec 2024