HWANGDBS Vickers Research has maintained a buy on Aeon Credit Service (M) Bhd as the non-bank financial group’s niche in microcredit financing business is poised to benefit in the current economic environment.

“In the current economic environment where cash is king, Aeon Credit is poised to benefit because of a greater need for credit facilities to tide over the tough times,” it said.

However, the research house reduced its target price to RM3.90 from RM4.05 previously based on 0.35 times FY09-2011 price/earnings to growth (PEG) (from 0.25 times FY08-2010 PEG). It applied a higher PEG target of 0.35 times after taking into consideration higher PEG valuations for regional peers.
 
“Our new target price implies FY2011 PE multiple of 6.8 times, or 43% upside potential. The stock remains attractive given its FY09-FY11 net profit CAGR (compound annual growth rate) of 19.2%, 24.7% ROE (return on equity) and prospective 6% net dividend yield for FY10,” HwangDBS said.

The company posted a 21.4% growth in net profit to RM13.6 million for the fourth quarter ended Feb 20, 2009 driven by 22.5% increase in revenue to RM51 million. For the full year, its net profit grew 46% year-on-year to RM48.8 million, exceeding market expectations.

A final 8.5 sen net dividend per share (DPS) was proposed, bringing FY09F DPS to 15.1 sen, or 37% payout. This translates into 5.5% net yield.

“Overall, the 4QFY09 results reaffirm our view that Aeon Credit’s fundamentals remain sound. The loan application rate is rising amid the current tough economic environment, although average approval rate has fallen due to its deliberate stringent approval policy to reduce default risk,” HwangDBS said.

Similarly, Maybank Investment Bank (Maybank IB), which maintained a buy on Aeon Credit with a target price of RM3.16, has forecast between 13% and 16% net profit growth in FY10 to FY12 for the company.

It said the target price of RM3.16 was based on an unchanged six times calendar year 2010 PER although positive re-rating catalysts could propel it closer to KLCI market valuations in the 10-12 times 2010 range in the medium term if Aeon Credit’s earnings growth beats its base case forecasts.

However, the earnings forecast was a base assumption, without reflecting the potential earnings growth from Aeon Credit’s proposed J Card credit card in partnership with affiliate Aeon Co.

“A meaningful acquisition of Aeon Co’s J Card members, which has an active member base of over 700,000, should significantly boost Aeon Credit’s credit card division, which had 117,000 card holders (+31% y-o-y) at end-FY09,” it said.

Apart from the upcoming J Card credit card, Maybank IB said it was closely monitoring Aeon Credit’s overseas expansion plan. The company has secured regulatory approval to open a representative office in India, and could start offering microcredit products as early as 2HFY10.

Aeon Credit jumped 33 sen to close at RM3.06 in active trade yesterday.