AEON Credit Service (M) Bhd is perhaps best known for its easy payment schemes for consumer durables at interest rates that are lower than those of financial institutions. Yet it serves a market — middle to low-income earners — that is often overlooked by other lenders which have eyes only for big money.
With business prospects in the next five years expected to improve as the income levels of Malaysians rise, the company plans to convert the customers of its present easy payment schemes to credit cards this year — a move that will help drive growth.
Revenue from its credit card operations has been flattish, writes OSK Research in a June 17 note.
“We started our AEON credit card business in 2005. Our card base now is equivalent to about 1% of total credit cards in circulation (CIC). By FY2011F, our target is 150,000 AEON CIC from 113,000 principal CIC now,” says AEON Credit managing director Yasuhiro Kasai.
Nationwide, Kasai estimates, there are about 8.94 million principal CIC. However, he predicts this number will shrink to about 7.5 million by year-end due to the RM50 and RM25 service tax on principal and supplementary cards respectively.
AEON Credit is one of only two non-banks — the other being MBf Holdings Bhd — that offer credit cards. However, MBf does not offer unsecured loans for consumer durables. AEON Credit also differs from RCE Capital Bhd, which offers financing services mostly to government servants and operates on a lower risk, lower returns model.
AEON Credit could be viewed as sharing more similarities with retailers Courts Mammoth Bhd and Singer Sdn Bhd, which also provide financing options for in-store items, although AEON Credit claims that its easy payment interest rates are at least 30% lower and it offers card holders access to a wider range of products from 5,000 participating merchants.
AEON Credit works closely with its sister company AEON Co (M) Bhd, which operates the Jusco chain of department stores, for its credit card business.
Kasai says up to 75% of AEON Credit’s credit card issuances are channelled via Jusco, riding the retailer’s wide network and leveraging its 900,000 JCard (Jusco privilege card) base.
At the company’s AGM in Kuala Lumpur on June 15, Kasai announced plans to widen AEON Credit’s nationwide merchant network to 6,000 to facilitate its business expansion plans by FY2011.
He also revealed plans to introduce a new AEON Credit web portal for online easy payment application submissions for merchants. The online portal is expected to be launched in 1Q2011 while a new prepaid card venture is expected to take off in FY2012.
AEON Credit hopes to grow its card acquiring business, which is now limited to Jusco, as well as broaden its base as a collection agency for its clients, which include utility and telecommunications companies.
Kasai was appointed as managing director on April 20, replacing Naruhito Kuroda, who served in the position from April 2001. Kuroda is now a non-independent non-executive director on the board of AEON Credit and has returned to Japan to take up a position in the parent company.
AEON Credit, a subsidiary of Tokyo Stock Exchange-listed AEON Credit Service Ltd, started business in 1997 providing easy payment schemes for consumer goods via selected retail merchants and chain stores. Today, its business has expanded to credit card issuance and personal finance schemes in addition to easy payments for small and medium enterprises. It also offers personal accident insurance underwritten by Tokio Marine Insurans (M) Bhd.
The company was listed on the Main Market of Bursa Malaysia in December 2007. AEON Credit Service Ltd held a 56.7% stake in it as at April 30.
According to Kasai, AEON Credit secures about 24% of its financing from equity and 76% from debt.
Of the 76%, about 65% is from the debt capital market while the remaining comprises bank borrowings at average rates of up to 4.5% on a blended portfolio basis. Within the portfolio, the tenure is mixed, with 60% being long term and maturing over 12 months, which helps maintain its margins at satisfactory levels.
On average, about 20% of the company’s receivables are from credit cards while the remaining 80% come from instalment financing, which comprises product financing and cash loans. Of this 80%, 7% is from personal financing, 30% from consumer durables and 43% from motorcycle financing.
For FY2010 ended Feb 20, the company’s net profit rose 11.3% y-o-y to RM54.28 million from RM48.76 million previously. Revenue grew 12.4% to RM210.14 million from RM186.92 million a year earlier, which the company attributes to growth in consumer financing from its easy payment schemes and credit cards.
Interest income, finance charges and profit revenue from the easy payment schemes, personal financing schemes and credit card business made up 97% of revenue, or RM205.40 million, while the balance was attributed to various fees, merchant commissions and Visa/MasterCard interchange fees.
AEON Credit saw revenue more than double over the last five years. Profit after tax tripled to RM54.28 million in FY2010 from RM13.51 million in FY2006. Return on equity, however, declined over the five years to 23.27% from 30.60% as shareholders’ funds rose. Net earnings per share rose steadily to 45.23 sen in FY2010 from 19.1 sen in FY2006.
AEON Credit says it recovered RM8.98 million in bad debts in FY2010, a 48.9% increase from RM6.03 million a year earlier. Its allowance for doubtful debts for FY2010 was RM50.23 million, a 41.3% increase from the provision of RM34.45 million a year earlier.
“We want to maximise revenue, so we have to balance out our risk exposure in bad debts and yet take on more sales. For us to achieve growth numbers and manage our accounts well, we closely monitor all loans disbursed,” Kasai says.
He adds that the company’s non-performing loan ratio stands at 1.8%, with bad debt defined as a lapsed payment of 90 days. The company has a comprehensive system of vetting and scoring its potential customers.
As at Feb 20, its capital adequacy ratio stood at 24.8%.
For 1QFY2011, AEON Credit reported an 8.2% increase in net profit to RM13.2 million from RM12.2 million a year ago. Net trade receivables as at May 20 stood at RM929.19 million, up 5.8% y-o-y.
AEON Credit has three “buy” recommendations and one “hold” from analysts, with an average target price of RM4.61, according to Bloomberg data. Consensus earnings per share for FY2011 stands at 54.2 sen.
The company’s share price hit its 52-week high of RM4.40 on Oct 15, 2009, and its 52-week low of RM3.02 on June 16, 2009. It ended at RM3.96 last Thursday, suggesting a forward price-earnings ratio of 8.6 times based on consensus forecasts.
This article appeared in Corporate page of The Edge Malaysia, Issue 811, June 21-27, 2010 |
