Listed in 2007, Aeon Credit Service (M) Berhad offers a diverse range
of financing services for the purchase of motor vehicles and consumer
durables in Malaysia. Presently, it operates out of six regional offices
and has a network of 71 branches and service centres in shopping malls
across Malaysia. As at 15 July 2019, Aeon Credit is worth RM4.2 billion
in market capitalisation.
In this article, I’ll bring an update on the company’s latest financial
results, long-term performance, and valuation. So here are 12 things to
know about Aeon Credit before you invest: 1. For the financial year ended 28 Feb 2019, Aeon Credit had gross financial receivables of RM8.7 billion. This comprised mainly of automobile financing, motorcycle financing, and personal financing:
Inclusive of impairment losses, Aeon Credit’s total financing
receivables amounts to RM8.1 billion. This amount has grown at a
compound annual growth rate (CAGR) of 25.0% from RM873 million in
FY2009. This is mainly attributable to growth from its key segments:
automobile, motorcycle, and personal financing over the last 10 years. Source: Aeon Credit annual reports2. Aeon Credit’s non-performing loans rose sharply from 1.73% in 2013 to 2.64% in 2015. This
was due to the company relaxing its lending policies to capture more
market share during the period. Since then, Aeon Credit has tightened
its policies and its NPL ratio has steadily dropped to 2.04% in 2019. Source: Aeon Credit annual reports 3. Aeon Credit had a stable collection ratio of 97.97% in 2019.
For receivables past due 1 month and past due 2-3 months, the
collection ratio was 82.58%, and 71.24% respectively. The collection
ratios are fairly consistent compared to the levels recorded over the
past three years. Source: Aeon Credit Q4 2019 results 4. Over the last 10 years, Aeon Credit has achieved a 22.0% CAGR in both revenue and shareholders’ earnings.
This was mainly due to steady growth in interest income and fees
received from provision of automobile, motorcycle, and personal
financing during the period. Source: Aeon Credit annual reports 5. From 2012 to 2017, Aeon Credit had a six-year return on equity (ROE) average of 30.0%. In 2018, the company substantially enlarged its equity base due to a rights issue of 432 million irredeemable convertible unsecured loan stocks,
which caused its ROE to fall to 19.0%. In 2019, Aeon Credit’s ROE
rebounded to 23.7% as the company continued to grow its profits. 6. As of 28 February 2019, Aeon Credit had a debt-to-equity
ratio of 3.38, an increase from 2018 but substantially lower compared to
levels recorded from 2013 to 2017. The ratio fell significantly in 2018 due to the aforementioned rights issue.
Aeon Credit also has a healthy total capital ratio (TCR) of 22.4%. In comparison, Malaysian banks have an average TCR of 17.46%. Source: Aeon Credit annual reports 7. Aeon Credit aims to increase its pool of borrowers in the Middle-40 (M40) income group.
The M40 group refers to a target group where median household incomes
range from RM3,860 to RM8,319 a month, and are considered higher-quality
borrowers than the B40 group of customers. The company’s focus on the
M40 group has allowed it to bring down its NPL ratio since 2015. Moving
on, Aeon Credit plans to offer customised products such as platinum
cards, risk-based pricing products, and the AEON E-wallet to this group
of customers. Source: Aeon Credit Q4 2019 results 8. In November 2018, Aeon Credit successfully launched AEON E-wallet.
It can be used by all Aeon members to perform cashless transactions at
all Aeon retail outlets across Malaysia. As of 28 February 2019, Aeon
Credit has over 150,000 e-wallet users and aims to reach one million
users in FY2020. Source: Aeon Credit Q4 2019 results 9. Aeon Credit was granted a money-lending license by the Malaysian Government which is valid for two years starting 15 January 2019.
Money-lending complements Aeon Credit’s existing financing business and
will open up a new revenue stream as it allows the company to market
its services to wider pool of customers. 10. P/E ratio: Aeon Credit reported earnings per share
of RM1.336 in FY2019. Based on its share price of RM16.70 (as at 15
July 2019), Aeon Credit’s P/E ratio is 12.5, above its 10-year average
of 10.97.
While its P/E ratio may look to be on the high side, the company has
been growing its earnings at 22.0% on average over the last 10 years.
This means Aeon Credit’s PEG ratio
is currently 0.57 which is considered unvalued when you take into
account the company’s growth rate. However, it may be more conservative
to use Aeon Credit’s more recent growth rates as a company’s growth
usually slows as it becomes larger. From 2016 to 2019, Aeon Credit’s
earnings CAGR was 15.9% — which gives us a more conservative PEG ratio
of 0.78. 11. P/B ratio: As of 28 February 2019, Aeon Credit has
net assets per share of RM5.87. Hence, it has a current P/B ratio of
2.84, which is below its 10-year average of 2.95. 12. Dividend yield: Aeon Credit has a track record of
paying increasing dividends over the last 10 years. Its adjusted
dividend per share has increased from 8.20 sen in 2010 to 44.60 sen in
2019 (adjusted for the rights issue in FY2018). Source: Aeon Credit annual reports
If Aeon Credit maintains its dividend, its current yield is 2.67% which is below its 10-year average of 3.20%.
The fifth perspective
Aeon Credit has delivered consistent growth in revenues, earnings and
dividends over the past 10 years. As such, its share price has risen
substantially and its market capitalisation has grown from RM350 million
in 2009 to RM4.2 billion today.
The stock currently looks expensive based on historical averages, but
if the company is able to sustain its growth rate for a number of years,
the stock may be worth its premium today. Whether you believe this
growth will pan out or not depends on your independent views and
research as an investor.
https://fifthperson.com/aeon-credit-service/
