AEONCR: Earning Growth Ending

Result Update

For QE31/8/2015, AEONCR's net profit dropped 17% q-o-q to RM48 million on the back of a 2%-decline in revenue to RM229 million. Compared to the results for 3-mth ended 20/8/2014, net profit dropped 2% q-o-q on the back of a 9%-increase in revenue.

Profits dropped q-o-q due to lower revenue and increase in operating expenses and funding cost. Profits rose marginally when compared to 3-mth ended 20/8/2014 due to 19.3%-increase in financing receivables (brought on by 1.52%-growth in financing volume and 2.89%-increase in total transactions); 64.9%-increase in other operating incomes (mainly comprised bad  debts recovered, commission income from sale of insurance products and AEON Big loyalty programme processing fee); lower NPL ratio of 2.58% (compared to 2.65% for QE20/8/2014) but partially offset by higher ratio of operating expenses to revenue of 63.2% (compared to 59.6% for QE20/8/2014); and higher funding cost (due to longer tenor of borrowings).


Table: AEONCR's last 8 quarterly results

From the diagram below, we observe the following:

• Both top-line & bottom-line had booked down.
• These hook-downs coincided with their rate of change approaching the zero line.
• Profit margins have been trending lower for the 10 quarters.

If top-line does not recover and/or profit margins continue to trend lower, AEONCR's bottom-line will inevitably start to decline noticeably.


Chart 1: AEONCR's last 33 quarterly results

Valuation

AEONCR (closed at RM13.58 yesterday) is now trading at a PE of 9.8 times (based on last 4 quarters' EPS of 138.9 sen). At this PER, AEONCR is deemed fairly attractive.

Technical Outlook

AEONCR is still in a long-term uptrend line, SS with support at RM12.00. This coincides with the horizontal line of RM12.00. AEONCR's immediate support is at RM13.00 while its immediate resistance is at the intermediate downtrend line at RM14.00.


Chart 2: AEONCR's monthly chart as at Oct 6, 2015 (Source: ShareInvestor.com)

Conclusion

Based on satisfactory financial performance, fairly attractive valuation and still positive technical outlook, AEONCR is rated as a HOLD for now. With its financial performance expected to deteriorate going forward, those holding onto the stock should take any opportunity to REDUCE position or SELL INTO STRENGTH if the share price goes near RM14.00.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, AEONCR.