KUALA LUMPUR (Dec 20): Analysts cut Aeon Credit Service (M) Bhd’s (KL:AEONCR) earnings projections due to elevated credit costs.

RHB Investment Bank Bhd (RHB IB) on Friday adjusted its earnings forecasts by a more modest 4% for FY2025–FY2027, with a lower target price (TP) of RM8.00 (from RM8.40), while it also maintained its “buy” call.

“We lower our FY2025F-FY2027F earnings by 4%, 3% and 3%, as we factor in higher credit cost assumptions, in line with the 9MFY2025 performance,” said RHB IB in a note. 

Coupled with the above, Aeon Bank contributed an associate loss of RM45.5 million, consistent with the management’s guidance for RM60 million to RM70 million in annual losses during the initial phase.

“Asset quality remains intact, with the NPL (non-performing loan) ratio declining to 2.4% from 2.7% a year ago. However, higher provisions for bad debts pushed the loan loss coverage ratio to 231%,” RHB IB added.

Similarly, Kenanga Investment revised Aeon Credit’s FY2025 and FY2026 earnings forecasts downward by 16% and 4%, on the back of continued impairment challenges and a cautious outlook for near-term profitability. 

We cut our FY2025F/FY2026F earnings by -16%/-4%, as we raise our gross credit cost assumptions from 5.00%/4.25% to 5.50%/4.75%, in anticipation of further BAU (business as usual) provisions by Aeon Credit with fewer writebacks in mind,” said Kenanga in a note.

“We opted to lower our applied GGM-ROE (Gordon growth model-return on equity) from 15% to 13%, being in line with the group’s near-term guidance,” it said.

Kenanga considers this a steeper discount compared to Aeon Credit’s five-year average ROE of 17%, and the house foresees difficulties in maintaining this level due to the rising volatility in the group’s credit costs.

Although the research house maintained its “outperform” call based on long-term growth potential, it reduced its target price (TP) to RM7.00 (from RM8.35).

In the first nine months (9MFY2025), Aeon Credit’s net profit declined 22% year-on-year (y-o-y) to RM239.6 million, forming 66% of RHB’s full-year estimate and 67% of Kenanga’s projection.

The weaker-than-expected performance was attributed to impairments, which pushed credit costs to 4.2%, above 3.7% previously. Kenanga further said the impairments were likely linked to the onboarding of new customers, which temporarily inflated provisioning needs.

Of the five analysts covering the stock, there are currently four “buy” calls and one “hold” call, with no “sell” calls.

Meanwhile, CIMB Securities kept its “hold” call but lowered its TP to RM7.00 over the group’s rising impairments and operating costs, while the house maintained its earnings forecast, pending the group’s 3QFY2025 results briefing.

“Our FY2025–FY2027F earnings forecasts remain unchanged, pending insights from ACSM’s (Aeon Credit) 3QFY2025 results briefing,” CIMB said.

At time of writing on Friday, Aeon Credit’s share price was unchanged at RM6.10, valuing the group at RM3.11 billion.