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Aeon Thana Sinsap (Thailand)

4Q13/14 earnings, the prove of strength BUY

Aeon Thana Sinsap (Thailand) Plc (AEONTS)

- Weak economy hardly hurts 4Q13/14 earnings

AEONTS reported 4Q13/14 net profit at B607m, contracting 5.5%qoq

and 11.2%yoy but 88% above expectation. Debt provisioning increased

only 6.7%qoq, substantially lower than projected, or the credit cost of

818bp to cover the additional write-off of bad debt of B1bn in this

quarter (an increase of 12.4%qoq) and to be in line with an increase of

B1.19bn in new NPLs (before write-off). NPL to total loans at end-

FY2013 increased to 3.04%, consistent with the net loan growth of

2.4%qoq and 20.9%yoy - lower than expected mainly because of the

political situation and stricter loan issuance policy. Credit card and

leasing loans still showed good growth. NIM dropped 49bp in this

quarter. Funding cost increased along with a 3.4%qoq increase in

interest-bearing debts, mostly long-tern bonds that have higher cost. As

a result, long-term debt ratio increased to 97%, closing a risk if the

interest rate reverses to an uptrend. For a positive factor in this quarter,

on the contrary, operating expense decreased 3.5%qoq, making the cost

to income ratio drop to 41.05%, the lowest in 11 quarters. Moreover,

earnings from AEONTS's subsidiaries both local (insurance and debt

collection businesses) and overseas also grew from last year, with B99m

difference between the company's separate financial statement and

consolidated financial statement (three domestic subsidiaries showed

profit, while overseas subsidiaries showed both profit and loss, especially

the business in Cambodia that could show the largest net profit of B18-

19m a month at present).

- 1Q14/15 profit to weaken on seasonal effect

We revise up our earnings forecast for 2014/15-17, as shown in the

table on the next page, in order to reflect lower debt provisioning after

2013. In spite of the unfavorable domestic political situation, there is

still the hope from the overseas business, especially in Cambodia as

AEON Mall opening in the next two months will help improve the

company's profitability. However, earnings in 1Q14/15 might decline

because it is a new school semester in which purchasing power of middle

to lower class consumers, AEONTS's major clients, would weaken.

- Low P/E ratio, attractive dividend yield of 4-5% p.a.

We reiterate to buy AEONTS. 2014 P/E ratio is still very low at only 8.7x.

2014/15 fair value is B121 (GGM), based on ROE forecast of 23.5% and

PBV of 2.97x. Dividend yield is estimated at 4-5% p.a. on average in


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