FW: RAM Ratings reaffirms P1 rating of AEON Credit’s RM 1 billion ICP Programme

 

Published on 15 Aug 2018.

RAM Ratings has reaffirmed the P1 rating of AEON Credit Service (M) Berhad's (AEON Credit or the Company) RM1 billion Islamic CP Programme. The reaffirmation is premised on our expectation of forthcoming support from its ultimate parent, AEON Co., Ltd. (AEON Co or the Group), given the Company's complementary fit in the Group's wider strategy of expanding and diversifying its revenue base in Asia. In the latest financial year, the Company contributed around 16% of the pre-tax profit of AEON Financial Service Co., Ltd. – its immediate parent and the financial services arm of the Group.

AEON Credit possesses an established franchise in the domestic consumer financing market. The Company expanded by 11% in FY Feb 2018 (FY Feb 2017: +19%), with growth largely stemming from its three main segments – personal, automobile and motorcycle financing. 

AEON Credit's robust profitability is anchored by its lucrative net interest margin (NIM), which stood at 12.6% in FY Feb 2018, albeit on a narrowing trend as the Company broadens its customer base to include the middle-income segment, in addition to its primarily low-income customers. Its return on assets and return of equity, which clocked in at a respective 5.3% and 31.4% in the same period, are still among the highest of that of domestic non-bank financial institutions. AEON Credit's broad NIM also affords its some flexibility in managing credit costs. The Company's credit cost ratio of 3.3% in FY Feb 2018 while high, has been stabilising over the years, despite a sizeable proportion of lower-income borrowers. 

As a non-deposit taking entity, AEON Credit is inherently dependent on external borrowings to fund its operations. That said, the Company's cash balances and unutilised committed credit lines sufficiently cover its short-term borrowings. Due to a RM432 million rights issuance, AEON Credit's gearing ratio had substantially declined to 3.7 times as at end-February 2018 from a high 6.5 times the year before (with perpetual securities deemed to be borrowings instead of equity). Additional provisions upon the adoption of Malaysian Financial Reporting Standards 9, however, had caused gearing to ascend slightly to 4.4 times as at end-February 2018, albeit still at a manageable level. 

 

Analytical contact
Liang Huey Jean
(603) 7628 1124
jean@ram.com.my

Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my