Japan's Aeon Credit gains 45% in Malaysia

Lender Aeon Credit Service and retailer Aeon Co are both units of Japan's largest supermarket and mall operator, but the former is the South-east Asian country's best-performing lender, while Aeon Co fell by 11 per cent in the past year.
Lender Aeon Credit Service and retailer Aeon Co are both units of Japan's largest supermarket and mall operator, but the former is the South-east Asian country's best-performing lender, while Aeon Co fell by 11 per cent in the past year.PHOTO: REUTERS

Lender outshines retail business but may be vulnerable to defaults if economy slows down further

KUALA LUMPUR • For Japan's Aeon, individual loans to buy cars and motorcycles has been a much better business in Malaysia than selling goods in supermarkets.

Aeon Credit Service gained 45 per cent in the past year, making it the best-performing lender in a gauge of Malaysia's financing companies, while retailer Aeon Co fell by 11 per cent, trading near its lowest level in more than four years.

Both are units of Japan's largest supermarket and mall operator.

A 25 per cent surge in third-quarter net income "positively affected the demand for our shares," Aeon Credit's chief financial officer Lee Kit Seong said in an e-mail reply.

Aeon's Malaysian supermarket unit declined to comment on its market performance but  RHB Bank expects Aeon Credit to continue its strong growth and raised its target price to RM18, analyst Stephanie Cheah said in a report yesterday.

Shares of Aeon Credit fell by 0.5 per cent to RM15.90, while Aeon Co slipped by 2.6 per cent at the close in Kuala Lumpur.

Aeon Credit's share price increase means it is "now considered a high-risk, high-return stock", said Phillip Capital Management chief investment officer Ang Kok Heng.

"Although Malaysia's economy has slowed, the company's performance has been cushioned by its high margins."

Malaysia's household debt is at a record level, the jobless rate is close to its highest in more than six years and consumer sentiment is near the lowest in a year, with some employers and analysts predicting more layoffs.

A report due tomorrow may show that the economy last year grew at its slowest pace since a contraction in 2009.

Aeon Credit's continuing allure is seen in its four buy and two hold ratings, while its target price implies a 12-month return of 3.6 per cent. The supermarket business, on the other hand, has six sell recommendations and one hold, with the price target showing expectations of a 3.5 per cent drop.

Further slowdown in Malaysia's economic growth may leave Aeon Credit vulnerable to defaults on its loans, said Mr Ang. Still, he is willing to wager on the lender continuing to deliver returns. "A lot of investors are holding the stock cautiously now after the out-performance," he said. "We are still looking to buy when the opportunity arises."

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A version of this article appeared in the print edition of The Straits Times on February 16, 2017, with the headline 'Japan's Aeon Credit gains 45% in Malaysia'. Print Edition | Subscribe