This article first appeared in The Edge Financial Daily on June 22, 2017 - June 28, 2017

KUALA LUMPUR: AEON Credit Service (M) Bhd plans to make its insurance business one of its core segments within the next three years, says its chairman Datuk Abdullah Mohd Yusof.

“There is huge potential for our insurance business. With a [six million] customer base from our sister companies of AEON Co (M) Bhd and AEON BiG (M) Sdn Bhd, we hope to make it one of our core segments [in three years],” Abdullah said, adding that the group needs to build the requisite infrastructure for growth of the segment.

“We [operate as an] insurance agent, and we are currently [working with] Prudential Malaysia, Chubb Insurance Malaysia Bhd and Tokio Marine Insurans (M) Bhd,” he told reporters after the group’s annual general meeting yesterday.

Abdullah added that for the financial year ended Feb 28, 2017 (FY17), the group’s insurance segment contributed RM11 million to its overall revenue of RM1.1 billion. That’s just 1% of its total top line.

The group’s main revenue contribution for FY17 came from its personal financing segment at RM270.7 million, while its motor financing segment clocked in at RM245.6 million, followed by its easy payments division at RM121.9 million. The group’s credit card segment contributed RM107 million to overall revenue for FY17.

Abdullah said the group intends to tap into the huge growth potential of the Malaysian insurance market, but could not comment on specific growth targets for the segment.

“[We have to adhere to] an agency’s restriction of two life insurance providers and two general insurance providers. But we plan to expand the segment by doing cross-selling across our existing customer database,” said the group’s executive director and chief financial officer Lee Kit Seong.

Meanwhile, the group plans to launch its e-money platform nationwide by the end of the current FY18, under which the group will offer innovative prepaid cards to customers.

“We [now] already have a test programme within AEON Group for the [e-money platform], so once the systems have been stabilised, we will launch the [e-money segment] nationwide, hopefully by the end of the current financial year,” Lee said.

Under the platform, the group will issue prepaid cards that will enable customers to earn reward points from spending, and give them access to exclusive merchant privileges. Besides retail customers at AEON stores, it is aimed at the untapped market of cash users.

“This will be a potential core business for us because now [there is an increase in the use of] mobile payments, and [it is also in line with] Bank Negara Malaysia’s aim to move towards a cashless society,” Lee added.

Yesterday, AEON Credit shareholders approved the group’s proposed renounceable rights issue of a three-year minimum 3.5% irredeemable convertible unsecured loan stocks (Iculs) on the basis of two Iculs for every one existing AEON Credit share held to raise RM432 million.

According to Lee, RM155 million of the proceeds from the rights issue will be used to repay long-term loans, while RM272.4 million will go towards working capital to finance the group’s new receivables. The remaining RM4.6 million will be used to finance the rights issue exercise.

The company also got shareholders’ nod for its proposed bonus issue of 72 million new shares, on the basis of one bonus share for every two existing shares.