Lower write-offs to drive AEON Credit re-rating

PETALING JAYA: Lower write-offs from legacy loans and easing associate losses are expected to serve as key near-term re-rating catalysts for AEON Credit Service (M) Bhd, according to CIMB Research.

The research house said AEON Credit currently stands at an inflection point and anticipates its net credit charge to increasingly normalise from 404 basis points (bps) in the financial year ending Feb 28, 2027 (FY27) towards 300 bps by FY29.

Following a difficult three-year cycle characterised by higher receivables write-offs, CIMB Research sees these legacy credit risks as reaching a final seasoning phase, with elevated write-offs at run rates of RM75mil per month are expected to taper off in the second half of FY27, supporting an improved earnings trajectory.

At the same time, the gradual migration of Agensi Kaunseling dan Pengurusan Kredit restructured accounts should result in lower expected credit loss provisions, likely from FY28 onwards.

The research house also cited lower expected associate losses from AEON (digital) Bank, combined with structural uplift from ongoing digital transformation, as a key driver for the group.

Meanwhile, RHB Research said amid ongoing geopolitical tension and inflationary pressures, it would be unsurprising if AEON Credit adopts a more cautious approach moving forward.

For its first quarter of FY27 (1Q27), the group posted a net profit of RM95.16mil, slightly missing the research house’s estimates, as a result of higher-than-expected credit costs.

Revenue for 1Q27 stood at RM647.57mil, up from RM599.92mil a year before.

RHB Research maintained its “buy” call on the stock and target price of RM6.80, making no changes to earnings forecasts.

“Although we still anticipate an earnings recovery in the upcoming quarters as credit costs moderate, the soft 1Q results point to a likely downward revision to our current FY27 forecasts,” it noted.

CIMB Research also kept a “buy” rating on AEON Credit and a target price of RM6.50, adding that it remained undemanding, trading at 0.9 times FY27 and 0.8 times FY28 forward price-to-book value.