Aeon Credit Service (M) Berhad (Aeon Credit) registered a higher-than-expected credit loss for the quarter ended 31 August, 2024 (Q2FY2024/2025), but positive sentiment can be felt around the group's dividend payout ability and RM300m deposits from its digital banking portal.

Kenanga maintains its OUTPERFORM call and target price of RM8.35 for Aeon Credit, noting that Aeon Credit's recent impairment surprise arose from an update of its Loss Given Default (LGD) model inputs and that the impairment issue will be assessed on a periodic basis.

Analysts at RHB favour Aeon Credit as a top pick and and maintain their BUY call for the counter. They expect a higher Dividend per Share (DPS) from Aeon Credit, putting the company's yields closer to its industrial peers. Nevertheless, the target price of Aeon Credit has been revised from RM8.80 to RM8.40.

As at 4:19 pm on Monday, Aeon Credit's stock traded at RM6.99. (Stock updates from )

It is noted that the Expected Credit Loss (ECL) for Q2FY2024/2025 was higher-than-projected. The group clarified that it was due to updates in its LGD model to reflect the sale of off-balance sheet recoveries. As understood, this is simply an updated estimate of recoveries from accounts that have been off its books. (Note: Loans are written off after 9 months in arrear.) This led to an additional RM30m of impairment, which without would have kept the six-month earnings of FY2024/2025 to be within expectations at 49% of the pre-revised earnings forecast.

In a company statement dated 26 September, Aeon Credit said Q2FY2024/2025 revenue jumped 14.8% year-on-year to RM541.43m, compared to RM471.73 in the corresponding quarter of the preceding financial year (FY2023/2024). The group also announced an interim dividend of 14.25 sen per share, implying a 41% dividend payout ratio.

On the digital front, Aeon Bank has retained an active user base of 80k of which 60% are new customers to the Aeon ecosystem. The bank did see a plunge from its peak deposits base of RM800m to RM300m, largely due to yield-seekers withdrawing their funds following the end of its campaign launch. That said, this is still above its target of RM200m.

While the group will likely incur more marketing spend to support its new customer acquisition efforts, Aeon Bank has retained a strong base of customers and will cross promote services to both Aeon Credit and Aeon Bank customers in the near term.