Aeon gets thumbs up from securities houses

Sucheera Pinijparakarn

The Nation

A recovery in consumer spending is a key factor to spur Aeon Thana Sinsap (Thailand)'s exposure in hire purchase and personal loans, local brokerages said last week.

Securities houses recommend a "buy" for Aeon's shares with the average target price of Bt53.

Aeon's stock closed at Bt39, up 25 satang, on Friday.

Pongrat Ratanatavanananda, a strategist at Bualuang Securities, said renewed consumer demand would benefit personal loan-providers especially Aeon, which targets low- and middle-income consumers.

Aeon aims for gross loan expansion of 12-15 per cent this year, up from 10 per cent last year, the brokerage said in a research note.

The company's management told securities houses that it plans to open 10 provincial offices this year, on top of its existing 76 branches.

Bualuang Securities maintained a "buy" for Aeon shares at Bt49. However, it lowered Aeon's profit estimate this year to Bt1.3 billion from Bt1.5 billion due to stiffer competition in the retail finance industry from banks and non-banks.

"Rising competition is making Aeon refocus its expansion plan to cater to under-served demand upcountry. Personal loans and credit cards are the key drivers," the securities house said.

The lower prices of IT products, attracting low-income shoppers, will puff up Aeon's hire purchase portfolio, said Yingyong Witsupalert, an analyst at SCB Securities.

As long as its products are cheaper, Aeon can expand its lending portfolio, he said.

Hire-purchase loans can serve as a springboard for other retail credit products. Aeon can evaluate customers' debt-paying history in order to provide personal loans and credit cards, he said.

Management told the brokerages that the company has to have different views and believes that inflation has good points for some products such as home appliances.

In 2007, Aeon's hire-purchase revenues rose 9 per cent to Bt1.36 billion, or 15 per cent of total revenue.

Aeon's expansion to neighbouring countries is a good sign as well as its plan to issue up to Bt3 billion of samurai bonds. "The bonds will support the company's plan to launch its promotion loan," Yingyong said.

SCB Securities said in its research note that it expects a recovery in earnings growth from 6 per cent to 13 per cent this year for Aeon on the back of loan growth recovering to 13 per cent this year from 8 per cent last year.

The brokerage recommends a "buy" on Aeon at a target price of Bt50.

Tisco Securities said the key driver was higher loan growth of 6.6 per cent.

It estimates net profit growth at 13 per cent this year with two key factors.

First, a higher loan yield after the Bank of Thailand raised the interest rate ceiling from 18 per cent to 20 per cent.

Second, a lower corporate income tax rate for the next few years with the rate falling from 35 per cent to 25 per cent for the first Bt300 million of income under a new tax scheme.

The securities house maintained a "buy" recommendation on the stock based on its expectation of a recovery in consumer spending, aided by the newly announced economic stimulus packages.