Aeon Thana Sinsap: Strong Q2 Boosts Bottom Line with Sales Gains and Lower Provisions
Broker: UOB Kay Hian
Date: October 8, 2024
Aeon Thana Sinsap (Thailand) (AEONTS) posted impressive results in Q2 FY24, driven by gains in sales and lower-than-expected provision expenses. The non-bank consumer finance company, which primarily focuses on providing personal loans and credit cards to middle- and lower-income groups, exceeded market expectations in its second quarter, positioning itself for sustained growth.
Q2 FY24 Performance Overview
In Q2 FY24, AEONTS reported a net profit of Bt822 million, down 2% year-on-year but significantly up by 57% quarter-on-quarter. The company’s performance exceeded both UOB Kay Hian’s and consensus estimates by 25% and 18%, respectively. The surge in quarterly profits was mainly attributed to a gain in sales from written-off receivables, which contributed Bt172 million in the quarter. The company had reported similar gains in Q2 FY23, marking these gains as periodic occurrences that occur once or twice per year. Excluding the one-time gain, the core bottom line in Q2 FY24 would have been Bt650 million, reflecting a 24% quarter-on-quarter increase.
Strong Sales and Improved Asset Quality
AEONTS’s net interest income increased by 0.7% quarter-on-quarter to Bt4.13 billion, despite a year-on-year decline of 1.7%. Non-interest income showed a robust 21.1% quarter-on-quarter growth, reaching Bt1.03 billion, which marked a 13.6% year-on-year increase. The company’s lower-than-expected loan loss provisions, down by 4.9% quarter-on-quarter to Bt1.99 billion, were a key factor contributing to the better-than-expected results. This reduction in provisioning expenses was indicative of improved asset quality, and AEONTS’s management expressed cautious optimism regarding credit costs moving forward.
The company’s cost-to-income ratio stood at 41%, unchanged from the previous year, reflecting a steady focus on cost management. Meanwhile, the non-performing loan (NPL) ratio increased slightly from 5.4% in Q1 FY24 to 5.8% in Q2 FY24, but the loan loss coverage ratio remained healthy at 159%, down from 168% in Q1 FY24.
Flat Loan Growth with a Cautious Lending Approach
AEONTS reported total gross loans of Bt92.5 billion for Q2 FY24, marking a slight 2% year-on-year decline and a flat performance quarter-on-quarter. Credit card loans declined by 2.4% year-on-year, reflecting the impact of an increase in minimum credit card payments from 5% to 8%, which affected outstanding credit card balances. Additionally, the company adopted a more cautious lending policy in response to Thailand’s uneven economic recovery, resulting in a contraction of personal loans by 4% year-on-year. Despite these challenges, AEONTS remained focused on maintaining good asset quality rather than relaxing lending criteria.
Outlook for H2 FY24
Looking ahead, AEONTS is expected to continue prioritizing asset quality while cautiously navigating the economic recovery. The company’s improved credit cost outlook for the second half of FY24 is promising, with the reduction in new non-performing loan formations providing further confidence. The management’s asset quality plan, implemented in Q2 FY24, has helped mitigate risk, and the company is well-positioned to capitalize on further economic improvements.
Conclusion
AEONTS’s Q2 FY24 performance highlights its resilience in navigating a challenging economic environment. With gains in sales, lower provisioning expenses, and an ongoing focus on asset quality, the company is poised for continued success. As AEONTS remains cautious with its lending practices, its ability to maintain steady profitability and manage risk effectively will be key drivers for its performance in the coming quarters. Investors should watch for further improvements in asset quality and potential upside as Thailand’s economy gradually recovers.
