KUALA LUMPUR (July 13): AEON Credit Service (M) Bhd (KL:AEONCR) will enhance its collection enforcement measures to rein in its bad debt write-off ratio, as it anticipates receivable challenges in the second quarter, according to RHB Research.

The company’s recent results briefing for the first quarter ended May 31, 2026 (1QFY2027) saw the quarterly receivables write-off ratio increased to 1.4% due to higher write-offs in the personal financing and used car segments. The write-off ratio shows the percentage of total receivables permanently written off as uncollectible by the company.

“AEON Credit saw collection challenges in May, which management attributed to temporary collection disruptions — resulting from, among others, school and public holidays.

“Management noted the possibility of 2Q continuing to see collection challenges due to inflation and unemployment pressures, but was hopeful of mitigating these risks by enhancing collection efforts,” said RHB in a note.

The house said the group's efforts will include an AI-powered VoiceBot, which the group predicts will be 20% more productive than human collectors.

“Overall, management thinks it can lower the quarterly write-off rate back to its 1.3% historical average and kept its full-year credit cost guidance of 4%,” said RHB.

In a separate note, CIMB Securities noted that the group does not view the 1Q write-off ratio as the new operating baseline, but rather a temporary deviation that should normalise as collection initiatives gain traction.

"In our view, the writeoff ratio has emerged as a key operating KPI (alongside ROE and receivables growth), as a successful reduction would support lower expected credit loss (ECL) provisions, stronger earnings growth and ultimately, a valuation re-rating," it said in a note.

Beyond collections, CIMB Securities noted several other complementary initiatives to support the group's credit performance in the second half of FY2027.

These include the planned resumption of bad debt sales following refinements to its loss-given-default (LGD) model to reflect prevailing recovery assumptions, which should allow receivables disposals with minimal incremental ECL impact – providing greater flexibility in managing legacy receivables.

Aeon Credit did not undertake any receivables sales for accounts written off more than 3.5 years ago in FY2026 due to unfavourable pricing, said CIMB Securities.

"Subject to achieving acceptable pricing, ACSM expects bad debt sale proceeds of RM20–40m in the current financial year," it added.

RHB trimmed its FY2027-FY2029 earnings forecasts by 6%, 8%, and 3% respectively for AEON Credit, citing higher credit costs and loss assumptions, while noting AEON Bank remains on track for FY2029 break-even despite an estimated RM75 million in FY2027 losses from technology and customer acquisition investments.

In light of the earnings revision, RHB lowered its target price to RM6.60 from RM6.80, but maintained its ‘buy’ rating on the group’s stock. 

The house additionally cited a lower book value per share and minor downward adjustments to its return on equity assumption to 13.25% from 13.4% as contributors to the adjustment.

Despite the adjustment, the stock continues to receive unanimous ‘buy’ recommendations from research houses tracked by Bloomberg. The average target price hovers at RM6.88, implying a potential upside of 20.5% for investors.

“Near-term operational momentum looks encouraging — the digital bank has onboarded 1,000 merchants under its business banking wing, while loan disbursements continue to gain traction.” said RHB.

The house said personal financing disbursements are expected to scale up to RM20 million this year, which would help provide a slight lift to yields and the net interest margin by year end. 

Moving forward, AEON Bank plans to roll out cash management and payroll services within the AEON Group ecosystem before cascading them out to external merchants. 

“With a long-term target asset mix of 60% business banking and 40% personal banking, the strategy is to utilise lower-cost business deposits to efficiently fund higher-yielding personal financing products,” it added.

Despite the relatively bright outlook, RHB has cautioned risk of higher-than-expected impairment allowances alongside weaker-than-expected financial receivables, if collection efforts are still insufficient.