Aeon Credit Service (M) Berhad ( AR 2019)

Corporate Profile

• Listed on Kuala Lumpur Stock Exchange on 2007. 
• In 2009, its revenue and net profit were RM 146 million and RM 48 million respectively. Share price after the bonus issue is RM 1.30
• In 2019, its revenue and net profit were RM 1,365 million and RM 354 million respectively. Share price after the bonus issue is RM 16.30
• Its revenue grew approximately 9 times while its profit grew approximately 7 times over the 10 years. Share price increased by 12 times over the 10 years. 
• Aeoncr has won "highest return on equity over 3 years", "highest growth in profit before tax over 3 years" continuously for year 2015 , 2016 , 2017 , 2018 for the edge award for financial service sector under RM 10 billion market capital. (This has proven that Aeoncr has consistency create values for its shareholders over the past 5 years)
• From the above cover page of 2019 annual report, we can see that Aeoncr is currently focusing on its cashless wallet to join the trend of e-wallet (i am not too sure how will this benefit Aeoncr greatly)
• Prior to 2018, the market segment that Aeoncr target is always the low income customers. However in 2018, they Launched AEON Platinum credit card (Visa and MasterCard) which is targeting at middle income customers. The minimum salary to apply for the card is RM 60,000 per annum. (this segment of customer usually has lower default risk in my opinion)
• Aeoncr also successfully obtain money lending license valid for 2 years ended in Jan 2021 (I believe Aeoncr can renew this license after that). This license enable Aeoncr to undertake any business of those relating to the money lending activities which complements its existing business. (i believe this can be another growth phase for Aeoncr)
• As at 2019, Aeoncr has 4.6 million of card members, 12,000 merchant outlet nationwide and 71 branches and service center. 

• From the above info, we can see that Aeoncr derive its income from mainly car financing (30%) followed by motorcycle financing (28%) and personal financing (26%). Financing on motor vehicle and personal financing constitute 85% of its income. (People who failed to get a loan from the bank will usually approach Aeoncr for their loan). 
• Aeoncr derive its main income from micro-financing.
• 62.59% of its shares are hold by its mother company AEON FINANCIAL SERVICE CO. LTD. with the rest of its top 30 shareholders being foreign fund. 

Financial Highlight

1. Revenue and net profit of Aeoncr grew at CAGR of 12% from 2014 - 2019 which is amazing as it beats the bank's performance. 
2. The number of shares grew 78% due to RCULS conversion which causes its EPS to drop 23% from 2017 - 2019. Without the additional shares, Aeoncr actually did very well as its net profit grew 33% from 2017 - 2019.
3. Dividend payout ratio stood at approximately 30 - 35%. 
4. Gross financing receivables are the amount that Aeconcr borrowed out and yet to collect back. As you can see that its gross financing receivables and net financing receivables grew by CAGR of 16% and 14% respectively (meaning to say, the business become bigger). 
5. Aeoncr achieved the lowest NPL over the 6 years which is only 2.04%.
6. Its PEG ratio workout to be 0.91.

Future Prospect

• Aeoncr will roll out the Robotic Process Automation and Biometric Identification which will benefit the Company in our operations and offer greater convenience to our customers.
• Launched e-wallet in November 2018 (however i dont see its e-wallet being popular yet and not sure how it can help Aeoncr to make money?).
• Trying to increase their middle income customer as currently 70% of their customers are the B40(low income group). 
• Continue to strengthen its customers’ loyalty through the continuous introduction of new loyalty programmes and benefits.
• Slowly move to B2B from B2C after obtaining the money lending license. 

Strength

• It is difficult for low income group to get loan from the bank therefore, they will turn to Aeoncr for their loan. However, Aeoncr would need to make sure the quality of their customer to minimize the default risk. 
• Strong management team as proven in the past 10 years (It is worth taking note that their NPL is only 2.04% which is even lower than CIMB of 2.91% and Maybank of 2.41%. Aeoncr customers' risk are usually higher than the conventional bank as they charge a higher interest rate for this default risk. However they are able to manage the risk to 2% is something worth praising)
• Strong balance sheet with high ROE.

Weakness

• Low dividend yield. 
• There will be further EPS dilution as there are more ICULS to be converted. 

Valuation @ RM 16.10

• At RM 16.10, its PE is 11.39 which is consider as its peak and its DY is only 2.77% which is below the 3% monthly FD rate. 
• A fair PE for Aeoncr would be somewhere around 10. Assuming if its EPS remain flat due to further ICULS conversion for 2020, at PE 10, its share price is RM 13.58 and its DY would be 3.3%. 
• At DY of 3%, its share price is RM 14.80. 

Technical Analysis

Aeoncr has been trading below its trendline for quite sometime however it is still well supported by its 200MA. Its 20MA is approaching to cross below its 200MA signifying the start of a downtrend if it happens.