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Categories
| Micro-finance keeps Aeon Credit ticking |
| Features | |||
| Written by Tony C H Goh | |||
| Monday, 06 July 2009 00:00 | |||
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At first glance, this seems like a prelude to the credit company venturing out of its core business of retail easy payment financing and into more sophisticated commercial and business loans. But Naruhito Kuroda, its managing director, says the company has no intention of taking on the traditional financial institutions or even rival micro- credit financing companies in areas such as working capital or business operation loans. “Micro-financing based on easy payment schemes for businesses is an untapped market that we want to capitalise on. Right now, we are aggressively building up the merchant network for us to go bigger. However, we have no intention of venturing beyond that,” Kuroda tells The Edge. The path Aeon Credit is treading will ensure that it does not compete directly with other notable non-bank financial services providers such as Hap Seng Credit Sdn Bhd and RCE Capital Bhd. However, a closer look at each of these three companies reveals fundamental differences as each player sticks to its own game. Aeon Credit has three main business divisions — credit cards, easy payment schemes and personal financing schemes. For FY2009 ended Feb 20, about 75% of its revenue came from easy payment schemes, thanks to the synergies derived from its sister company, retailer Aeon Corp Bhd. Credit cards brought in another 15% of total sales while personal finance contributed 10%. Total revenue during the period was RM229 million, a 17.9% increase from RM188 million last year, while operating profit was RM92.3 million, up 34% from RM68.93 million previously. Consumer financing has always been Aeon Credit’s mainstay. Its parent company Aeon Credit Service Co Ltd is the leading credit card company in Japan, with more than 90% of its revenue coming from card-related businesses. Aeon Co holds a 56.7% stake in the Malaysian unit. In the case of Hap Seng Credit, it was established in 1982, with a paid-up capital of RM250 million, as the credit financing division of diversified group Hap Seng Consolidated Bhd. Its principal activities include providing financial services that cover hire purchase, industrial hire purchase, and leasing and term loans mainly for SMEs. Hap Seng Credit had an operating profit of RM49.76 million from revenue of RM76.77 million in FY2008 ended Jan 31. Over 93% or RM1.12 billion of its total outstanding loans of RM1.2 billion was from companies, while individuals took up another RM75 million. Its ratio of net loan default was 4.73% during the same period. As for RCE Capital, it is an investment holding company with a share capital base of RM71 million. It is 41.48%-owned by Cempaka Empayar Sdn Bhd, a company linked to AMMB Holdings Bhd’s chairman Tan Sri Azman Hashim, who is also RCE Capital’s executive chairman. Its wholly-owned subsidiary RCE Marketing Sdn Bhd is a major player in the niche credit cooperative market. Provision of personal loans to civil servants accounts for almost its entire credit portfolio, while collection of repayments is done through strategic affiliation with Angkatan Koperasi Kebangsaan Malaysia Bhd, the centralised collection agency for cooperatives. RCE Capital recorded a gross operating profit of RM111 million in FY2009 ended March 30, out of revenue of RM215.4 million. It raises funds by tapping the debt market. RCE Capital’s biggest venture in the capital market to date is the RM1.5 billion asset-backed securitisation in 2007. The triple A-rated facility is for 5½ years and remains the largest consumer receivables securitisation in the country. To be marketed under its existing easy payment platform, the Aeon-Biz easy payment scheme is mainly for the purchase of business and office equipment by SMEs. It provides credit facilities of up to RM50,000, with an introductory rate of 0.8% per month or 9.6% per annum. For now, Aeon Credit’s main sources of financing are bank borrowings and the debt capital market, with an average cost of capital of 4.53%. Currently, the ratio of bank borrowing to debt market stands at 50:50, although plans are in place to increase its debt market portion to 60%. On what will be the next catalyst for the company, most analysts believe that for now, Aeon Credit is comfortable sticking to its business model of relying on the steady stream of income from its 5,300-strong merchant network nationwide for its easy payment scheme. Going forward, Kuroda says Aeon Credit aims to grow its credit card business. The division is planning an aggressive campaign this year to more than double its cardholders to 250,000 by end-2009 from 111,000 at end-2008. This, however, will not be an easy task. Maybank IB’s analyst Kir Mirza opines that the main challenge faced by Aeon Credit in growing its card division is the lack of a strong brand name. “It is also a latecomer to the credit card game, so there is a need for an extra pull factor to get the man on the street to carry its card,” he says. But there is still room for growth. One example is the second-hand car financing market that the Malaysian entity is looking at. Used-car financing has the potential to bring in about RM10 million in revenue a month or an average of RM12 million in annual net profit, based on a net margin of 10%. Furthermore, Aeon Credit can take on more risks as the risk of default is relatively low due to the affordable and small amounts of credit it offers. As at the end of 1QFY2010, total gross trade receivables had exceeded RM900 million. Non-performing loans dropped to 1.85% in 1QFY2010 from 2.05% in the same period last year. Last year, it paid 37.1% or RM18.1 million in dividends from its net profit of RM48.76 million, up from 34.1% of net profit of RM33.4 million the year before. While Aeon Credit is in no position to compete with banks or traditional financial institutions in terms of fund size and costs of credit, these constraints can be mitigated by staying nimble and enhancing its operating efficiencies. This article appeared in Corporate page of The Edge Malaysia, Issue 762, July 6-July 12, 2009
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