Aeon Thana Sinsap Thailand: Resuming Loan Growth Signals Positive Outlook and Upgraded to BUY

In-Depth Analysis of AEONTS: Financial Insights and Strategic Forecasts

Analyst Report by UOB Kay Hian, December 11, 2024

Overview of AEONTS

AEON Thana Sinsap (Thailand) Public Company Limited (AEONTS) is a distinguished non-bank consumer finance operator in Thailand, primarily providing personal loans and credit card services. The company’s strategic focus is on catering to the middle- to lower-income demographics, making it a significant player in its sector.

Financial Performance and Forecast

3QFY24 Results Preview

AEONTS is anticipated to announce a 3QFY24 net profit of Bt695 million, reflecting a slight decline of 2% year-on-year (yoy) and 16% quarter-on-quarter (qoq). The qoq reduction is largely due to the absence of gains from the sale of written-off receivables. Despite this, the company reported a pre-provision operating profit increase of 5% yoy, although it did see a 3% drop in 3QFY24.

Lending and Loan Growth

Encouraged by government stimuli, AEONTS plans to resume lending activities, focusing on selective customer groups. The company has projected credit card and personal loan growth targets of 3-5% and 3% respectively for 2024. This strategy is expected to enhance its asset quality and overall financial health.

Key Financial Indicators

For 3QFY24, AEONTS projected total gross loans of Bt91,758 million, with net interest income slightly decreasing to Bt4,066 million. Non-interest income is expected to rise by 16.1% yoy, reaching Bt877 million. The company also anticipates a marginal improvement in its NPL ratio, reducing from 5.8% in 2QFY24 to 5.6% in 3QFY24.

Strategic Outlook and Investment Recommendations

Asset Quality and Government Measures

The report forecasts an enhanced asset quality for AEONTS in the latter half of FY24, driven by a strategic increase in credit costs and government measures aimed at reducing non-performing loans (NPLs). The government’s initiative to offer haircuts on unsecured NPLs is expected to significantly benefit AEONTS, improving both household debt issues and individual purchasing power.

Earnings Revisions

UOB Kay Hian has revised AEONTS’s earnings forecasts upward for FY24-26 by 8.4%, 3.2%, and 4.4% respectively, reflecting a more optimistic macroeconomic outlook bolstered by government interventions.

Valuation and Recommendation

The report upgrades AEONTS to a “BUY” recommendation, with a revised target price of Bt158.00, employing the Gordon Growth Model with a cost of equity at 13.0% and a long-term growth rate of 3.0%. This target price represents 1.5x the 2024 forecasted P/B, slightly below its five-year average.

Environmental, Social, and Governance (ESG) Initiatives

AEONTS is committed to sustainability, with initiatives such as reducing paper and plastic usage by transitioning customers to e-statements within the next 3-5 years. Waste management is also prioritized, with a forecasted waste segregation rate of 95% in the coming years. Socially, AEONTS aims to maintain a complaint satisfaction rate of 85% and achieve high satisfaction in financial literacy programs. Governance efforts focus on minimizing ethical complaints and corporate corruption incidents.

Conclusion

AEONTS’s strategic focus on improving asset quality, resuming lending growth, and leveraging government measures positions it well for future growth. The company’s commitment to ESG initiatives further enhances its appeal to investors seeking sustainable investment opportunities. With a “BUY” recommendation from UOB Kay Hian and a favorable macroeconomic outlook, AEONTS stands as a promising investment in the financial sector.