AEON Credit sees continuous strong growth in two divisions

Posted on April 13, 2013, Saturday

KUCHING: AEON Credit Services (M) Bhd (AEON Credit) continues to see promising loans growth premised on its strong personal financing sector as well as vehicle easy payments division.

An analyst with HwangDBS Vickers Research Sdn Bhd (HwangDBS Research) expected AEON Credit’s earnings and loan growth to remain strong albeit at a more moderate pace.

“We also expect the other segments to grow at a more moderate pace in financial year 2014 forecast (FY14F): vehicle easy payments at 30 per cent (versus 57 per cent in FY13F), general easy payments at 11 per cent (versus 22 per cent in FY13F) and credit cards at 15 per cent (versus 18 per cent in FY13F),” she detailed in her report on the group yesterday.

The analyst highlighted key drivers being personal loans and vehicle easy payments as AEON Credit continued to fill the financing needs of customers in the low to middle income segment.

“We believe loan growth of more 20 per cent should be sustainable for the next two years given AEON Credit’s relatively low base,” she added.

“Its total loan book of RM2.3 billion is relatively small compared to the banking sector’s RM1.1 trillion loans outstanding.”

Looking at the personal loans division, the analyst explained that outside the banking system, consumers’ financing needs are usually filled by non-bank financial institutions (NBFIs) such as AEON Credit, Malaysia Building Society Bhd, RCE Capital Bhd and development banks.

“Notably, Bank Negara Malaysia (BNM) reported lending by NBFIs to the households grew 23.4 per cent in 2012, much higher than the banking sector’s 11.6 per cent,” she elaborated.

“We believe NBFIs like ASCM filled the financing gaps after BNM introduced tighter retail lending rules for the banks in January 2012.

“Going forward, branch expansion will be an avenue to widen AEON Credit’s distribution network for personal loans.

“We believe salary revision among the low income group could drive higher spending power and thus trigger more financing or refinancing needs.”

Looking at vehicle easy payments, the analyst noted that AEON Credit targeted a different market from banks in the automotive segment.

“The biggest portion of the vehicle easy payment business is motorcycle financing.

“We understand banks do not usually focus on this space (except for bigger capacity bikes) as the loan size is very small; typically RM6,000 to RM7,000,” she explained.

This type of financing is being categorised as an easy payment scheme and is not governed by the Hire Purchase Act.

The key advantage is faster turnaround time for processing and approval, while almost all the loans are secured by the vehicles financed.

“Aeon Credit is also growing the loan book of the bigger capacity bikes (targeted at higher-end customers) to diversify its customer profile and to improve yields.

“There is also an opportunity to improve yields as AEON Credit takes on higher risks to finance used cars and motorcycles, but this segment is still small (less than 10 per cent of vehicle easy payment loan book),” she concluded.

Read more: http://www.theborneopost.com/2013/04/13/aeon-credit-sees-continuous-strong-growth-in-two-divisions/#ixzz2Ut61OJGJ

A good quality company trading with a large margin of safety

Company OD

Quarter	High Pr	Low Pr	ttm-eps	High PE	Low PE
1	10.18	10.02	72.91	13.96	13.74
4	9.15	9.09	72.67	12.59	12.51
3	9.08	9.02	72.60	12.51	12.42
2	9.22	9.16	70.69	13.04	12.96
1	8.76	8.65	69.27	12.65	12.49
5	8.76	8.65	68.84	12.73	12.57
5	8.71	8.63	67.16	12.97	12.85
5	8.77	8.74	65.56	13.38	13.33
5	8.50	8.35	64.06	13.27	13.03
4	8.74	8.62	61.39	14.24	14.04
3	8.98	8.75	58.74	15.29	14.90
2	8.67	8.62	57.70	15.03	14.94
1	9.27	9.10	56.02	16.55	16.24
4	8.42	7.65	53.95	15.61	14.18
3	7.77	6.94	23.44	33.15	29.61
2	7.00	6.62	15.99	43.78	41.40
1	7.08	6.60	12.33	57.42	53.53
4	6.86	6.31	7.95	86.26	79.35
3	3.72	2.97	35.51	10.49	8.35
2	3.86	3.52	39.10	9.88	8.99
1	4.28	3.39	38.52	11.10	8.81
4	5.48	4.97	40.87	13.42	12.15
3	5.59	4.72	46.21	12.09	10.22
2	4.72	4.41	46.26	10.20	9.54
1	7.28	6.07	47.82	15.23	12.69
4	6.51	6.07	45.75	14.23	13.27
3	6.90	6.57	42.91	16.07	15.30
2	7.17	6.57	41.49	17.29	15.82
1	7.01	6.23	39.46	17.76	15.80
4	6.40	6.12	41.06	15.59	14.91
3	5.96	5.74	37.07	16.07	15.48
2	6.12	5.85	38.01	16.11	15.39
1	6.34	5.90	39.24	16.17	15.04
4	6.46	6.18	37.78	17.09	16.36
3	6.29	6.01	39.27	16.02	15.31
2	6.90	6.12	39.48	17.47	15.51
1	6.62	6.46	38.00	17.42	16.99

Quarter	Q1 eps	Q2 eps	Q3 eps	Q4  eps	FYE eps	Div
0-Jan-00	17.87	0.00	0.00	0.00	17.87	0.00
31/12/2012	17.63	18.64	19.11	17.29	72.67	65.00
31/12/2011	17.20	17.22	17.20	17.22	68.84	36.00
30/06/2011	14.53	15.72	15.60	15.54	61.39	60.00
30/06/2010	12.46	14.04	14.56	12.89	53.95	55.00
30/06/2009	8.08	10.38	7.11	-17.62	7.95	0.08
30/06/2008	10.43	9.80	10.70	9.94	40.87	31.72
30-Jun-07	8.36	11.35	10.76	15.28	45.75	44.14
30-Jun-06	9.96	9.32	9.34	12.44	41.06	46.90
30-Jun-05	8.51	10.55	10.28	8.44	37.78	56.55
				Sum	448.14	395.39
				DPO	88.2%

Latest share price $10.18

ttm-EPS 72.91 sen

Last FY DPS 65 sen

DPO ratio 89.5%

P/E 13.96

DY 6.39%

Historical P/E range 12 - 16

Historical DY range 4.86% - 6.27%

Estimated EPSGR 8% per year

Present risk free interest rate 4%.

Assuming no growth in its earnings or dividends, and using 4% risk free interest rate
as the discount factor, the present value of:
1.  The earnings stream is equivalent to an asset of  72.91 sen / 4% = $18.23
2.  The dividends stream is equivalent to an asset of  65 sen / 4% = $16.25

At present per share price of $10.18, its upside potential is $18.23 - $10.18 = $ 8.05.

Its downside risk is protected by its dividend yield which is equivalent to an asset of $16.25.  This value exceeds its present share price of $10.18 by a substantial margin of $16.25 - $10.18 = $6.07 per share.

That is, its present share price is at 37.45% below its intrinsic value (the value supported by its dividend yields).

Given its good quality of its business and the large margin of safety at the present market price, this stock is a BUY.

Good quality company at fair price

COMPANY RD

Quarter	High Pr	Low Pr	ttm-eps	High PE	Low PE
1	16.90	16.18	111.27	15.19	14.54
4	16.20	15.42	110.48	14.66	13.96
3	15.96	15.02	107.18	14.89	14.01
2	14.46	14.18	104.76	13.80	13.54
1	13.80	13.50	102.70	13.44	13.15
4	14.04	13.54	99.47	14.11	13.61
3	12.78	12.30	98.59	12.96	12.48
2	13.46	12.52	95.28	14.13	13.14
1	13.26	12.98	91.10	14.56	14.25
4	13.54	12.84	87.17	15.53	14.73
3	12.86	12.50	82.66	15.56	15.12
2	12.22	11.92	78.83	15.50	15.12
1	12.04	11.26	75.57	15.93	14.90
4	12.00	10.94	73.31	16.37	14.92
3	11.02	10.62	73.15	15.06	14.52
2	10.30	9.84	73.00	14.11	13.48
1	8.80	8.35	72.99	12.06	11.44
4	9.25	8.55	76.94	12.02	11.11
3	8.80	8.15	74.78	11.77	10.90
2	10.30	9.80	72.62	14.18	13.49
1	12.00	11.30	70.55	17.01	16.02
4	11.80	10.30	63.35	18.63	16.26
3	11.40	10.40	59.38	19.20	17.51
2	11.10	9.90	56.21	19.75	17.61
1	10.20	9.65	54.27	18.79	17.78
4	9.55	8.80	51.79	18.44	16.99
3	8.90	7.60	50.32	17.69	15.10
2	6.90	6.60	47.88	14.41	13.78
1	6.75	6.25	45.39	14.87	13.77
4	6.70	6.45	54.88	12.21	11.75
3	6.75	6.35	63.93	10.56	9.93
2	6.90	6.70	73.23	9.42	9.15
1	13.80	12.90	77.80	17.74	16.58
4	15.50	15.00	64.23	24.13	23.35
3	14.70	13.80	50.49	29.11	27.33
2	10.40	9.92	37.23	27.93	26.64
1	9.84	8.80	29.10	33.81	30.24

ttm-EPS Growth Rates

1yrCAGR	2yrCAGR	5YrCAGR	7YrCAGR	10YrCAGR
8.3%	10.5%	8.9%	13.7%	14.4%

	HPE	LPE
Avg 5 Yrs	14.29	13.62
Avg 10 Yrs	16.47	15.47

	LDY%	HDY%
Avg 5 Yrs	4.63%	4.87%
Avg 10 Yrs	6.51%	6.91%

Quarter	Q1 eps	Q2 eps	Q3 eps	Q4  eps	FYE eps
31-Dec-13	27.65	0.00	0.00	0.00	27.65
31/12/2012	26.86	27.20	28.08	28.34	110.48
31-Dec-11	23.63	25.14	25.66	25.04	99.47
31-Dec-10	19.70	20.96	22.35	24.16	87.17
31/12/2009	17.44	17.70	18.52	19.65	73.31
31-Dec-08	21.39	17.69	18.37	19.49	76.94
31-Dec-07	14.19	15.62	16.21	17.33	63.35
31-Dec-06	11.71	13.68	13.04	13.36	51.79
31-Dec-05	21.20	11.19	10.60	11.89	54.88
31-Dec-04	7.63	15.76	19.90	20.94	64.23
				Sum	709.27
				DPO	89.7%

Quarter	FYE eps	Div	Ret Earn	DPO%
31-Dec-13	27.65	0.00	27.65	0.0%
31/12/2012	110.48	50.00	60.48	45.3%
31-Dec-11	99.47	48.00	51.47	48.3%
31-Dec-10	87.17	58.00	29.17	66.5%
31/12/2009	73.31	55.00	18.31	75.0%
31-Dec-08	76.94	55.00	21.94	71.5%
31-Dec-07	63.35	75.00	-11.65	118.4%
31-Dec-06	51.79	60.00	-8.21	115.9%
31-Dec-05	54.88	55.00	-0.12	100.2%
31-Dec-04	64.23	180.00	-115.77	280.2%
Sum	709.27	636.00	73.27
DPO	89.7%
	FYE eps	Div
1YrCAGR	11.1%	4.2%
2YrCAGR	12.6%	-7.2%
3Yr CAGR	14.6%	-3.1%
5YrCAGR	11.8%	-7.8%
8YrCAGR	7.0%	-14.8%

Qtr No	ROE
1	22%
4	22%
3	22%
2	22%
1	23%
4	23%
3	25%
2	24%
1	25%
4	23%
3	24%
2	23%
1	23%
4	23%
3	25%
2	24%
1	26%
4	27%
3	27%
2	26%
1	27%
4	23%
3	23%
2	21%
1	21%
4	19%
3	20%
2	19%
1	18%
4	21%
3	29%
2	33%
1	18%
4	13%
3	10%
2	9%
1	14%

Summary:
At today's price, this company is trading at:

P/E of 15.2 x

DY of 2.96%

Its EPS GR is around 9% to 10% for recent years.

It distributes dividends yearly, though in recent years, it has retained more of its earnings in the company.  

However, given its high ROE of 22% or so, this greater portion of retained earnings is advantageous and beneficial to the long-term investors.

Though its share price has risen over the last 2 years in this bull market, its P/E has only increased minimally or modestly.  

Differences between investment and speculation

Differences between investment and speculation

1.  Investment:  Investment is rationally based on the knowledge of past share price behaviour.  From such knowledge, it is possible to compute the probability of future return.  

• A common method of investment analysis is to study the past range of PER or DY of a particular share or a class of shares. 
• From this study of its past price range, we can predict the likelihood of its price being out of this range in the future. 
• By comparing its current price with the expected future price range (future price = future PER x future earnings) we know whether the current price is too high or too low and take the necessary action accordingly.

Speculation:  Speculation is purely based on the HOPE that the future price will be higher rather than on anything tangible.

2.  Investment:  Investment requires an investor to do some work before hand and decisions are made based on known facts and figure.  

• Such work typically may consist of estimating future level of Earnings Per Share and computing the past range of the PER. 
• By multiplying the future EPS with the likely PER, we have an estimate of the future level of price. 
• If the present price is very low compared with the future price, we buy and vice versa.

Speculation:  Speculation is usually based on wild rumours and unsubstantiated hearsays which cannot be checked for accuracy.  Undoubtely, speculation is a lot easier than investment but one tends to reap what one sows.

3.  Investment: Investment is made for the long term (i.e. two years or more)based on the idea that one is much more certain when one is trying to predict the cumulative results of many daily movement.  Once invests with the knowledge that over the long run, the real investors will always make a gain.

Speculation: Speculation is usually for the short run (i.e three months or lessunless one is caught whence a speculator is then forced to become an investor), based on the idea that certain events may result in a rise in price (bonus, rights, takeovers, and others).

4.  Investment: Over a long period of time, true investment tends to produce a positive result.  Based on many years of research in the US and Europe, Long Term Investment consistently produced much higher return than fixed deposit or the inflation rate.  The Malaysian experience has mirrored the Western experience.

Speculation: Since speculation is not based on anything concrete, its result is not at all predictable.  Speculation can occasionally produce very high gains just as it can produce very high losses.  Over a long period of time, speculation is most unlikely to produce better return than true investment.  

5.  Investment: True investors can sleep soundly at night since they have a fairly good idea of the possible extent of their loss and gain before hand. Besides, since they are investing for the long term, they can forget about short term movements and ignore the market most of the time.  

Speculation: Speculation is likely to lead to many sleepless nights and anxious days since its result is so uncertain.  The speculator will have to be always on the alert to take the necessary quick action to catch the right moment. 

Previously posted in this blog on SUNDAY, OCTOBER 25, 2009

Guinness Malaysia is richly valued

Guinness Malaysia

Quarter	Q1 eps	Q2 eps	Q3 eps	Q4  eps	FYE eps
30-Jun-13	18.81	21.90	20.24	0.00	60.95
30/06/2012	18.28	21.79	17.06	11.53	68.66
30/06/2011	12.81	21.40	16.21	9.63	60.05
30/06/2010	8.85	14.50	15.38	11.81	50.54
30/06/2009	15.66	11.48	10.79	9.07	47.00
30-Jun-08	14.27	8.90	12.05	6.45	41.67
30-Jun-07	12.27	8.08	11.23	5.68	37.26
30-Jun-06	12.03	9.90	6.93	13.58	42.44
30-Jun-05	9.70	9.48	7.19	9.37	35.74
30-Jun-04	7.00	11.32	5.89	8.38	32.59
				Sum	476.90
				DPO	101.3%

EPSGR from 2004 to 2012 (Period 8 years) was about 10% (actual is 9.8%).

Historical PE of Guinness (most recent quarters data at the top.)

Quarter High Pr Low Pr ttm-eps High PE Low PE 3 20.88 20.50 72.48 28.81 28.28 2 18.88 16.46 69.30 27.24 23.75 1 16.88 16.00 69.19 24.40 23.12 4 16.00 15.10 68.66 23.30 21.99 3 13.62 12.70 66.76 20.40 19.02 2 13.80 12.80 65.91 20.94 19.42 1 13.50 11.56 65.52 20.60 17.64 4 10.20 9.40 60.05 16.99 15.65 3 10.66 9.95 62.23 17.13 15.99 2 9.84 9.44 61.40 16.03 15.37 1 10.16 9.10 54.50 18.64 16.70 4 8.39 8.05 50.54 16.60 15.93 3 7.78 7.12 47.80 16.28 14.90 2 7.05 6.80 43.21 16.32 15.74 1 7.12 6.78 40.19 17.72 16.87 4 7.00 6.50 47.00 14.89 13.83 3 6.15 5.90 44.38 13.86 13.29 2 5.65 5.35 45.64 12.38 11.72 1 5.20 4.96 43.06 12.08 11.52 4 5.45 5.05 41.67 13.08 12.12 3 5.45 5.20 40.90 13.33 12.71 2 5.55 5.20 40.08 13.85 12.97 1 5.80 5.35 39.26 14.77 13.63 4 6.10 5.25 37.26 16.37 14.09 3 5.90 5.10 45.16 13.06 11.29 2 6.45 5.80 40.86 15.79 14.19 1 6.60 5.90 42.68 15.46 13.82 4 6.30 5.80 42.44 14.84 13.67 3 5.85 5.45 38.23 15.30 14.26 2 5.85 5.40 38.49 15.20 14.03 1 5.95 5.50 38.07 15.63 14.45 4 5.90 5.50 35.74 16.51 15.39 3 5.85 5.35 34.75 16.83 15.40 2 5.60 5.30 33.45 16.74 15.84 1 5.55 5.10 35.29 15.73 14.45 4 5.30 5.05 32.59 16.26 15.50 3 5.05 4.74 30.59 16.51 15.50

On 29.8.2013, it is priced at $20.80 per share.

This is at a P/E of 28.81 times.

Over the last 8 quarters (2 years):

ttm-EPS has grown from 62.23 sen to 72.48 sen (+16.5%)

P/E has expanded from average of 16.56 times to the average of 28.55 (+72.4%)

Market Price of Share = EPS x PE

The share price of Guinness has risen over the last 2 years "enriching" its business owners.  

This share price increase is partly due to improving EPS and mainly due to the very generous P/E expansion during this period.

Has the market price risen ahead of the value based on the fundamentals of this stock?

In any event, the upside return/downside risk ratio is less enticing and also, the potential return based on the current price is less attractive.

AEON: What is its fair value?

AEON
		31/12/12	31/12/11	31/12/10	31/12/09	31/12/08
EPS (sen)		60.6	55.7	47.0	38.0	34.4
Gross DPS (sen)		24.0	19.0	16.0	12.0	12.0
NAV per shr ($)		4.19	3.67	3.21	2.80	2.51
ROE %		14.49	15.17	14.67	13.57	13.67
P/E ratio		23.30	13.00	12.96	13.04	12.22
Shr Pr ($) (31/12)		14.12	7.24	6.09	4.96	4.20

On 29.5.2013, Aeon closes at $17.96 per share.

Its latest ttm-EPS was 64.46 sen.

This gives a P/E ratio of 27.86 .

EPS Growth Rate last 5 years was 15.5%

Assuming, future EPS GR is also 15.5%, PEG = 27.86 / 15.5 = 1.8

Its gross DPS in 2012 was 24 sen and at present share price, its DY is 1.34%.

[Historical DY ranges from a high of 2.63% to a low of 1.65%.

Historical PE was < 15. ]

At present price of $17.96 per share, EPS GR of 15%, and P/E ratio of 27.86,

1.  What is the Upside Returns / Downside Risk of this investment at the present price?

2.  What is the Potential Returns of this investment at the present price?

.

Have the Discipline to Say No

1.  A particular security is selling in the market for $25 a share.

2.  The strong fundamental qualities of this security are well known, and as a result, the stock has typically traded at a fair to overvaluation.

3.  At the current price of $25 a share, the stock is indeed slightly above fair value.

4.  Eager to buy, an investor is on constant watch for any dip in stock price, but the dip never comes.

5.  Instead, over the next few weeks the stock seems only to go up in price and is now at $35.

6.  Not wanting to miss out on the continued rise, the investor rushes to buy in.

7.  In the next few weeks, the stock is back at $25 and the investor, an able and bright fellow, feels like the dumbest man on the planet.

8.  His downfall had nothing to do with intelligence.

9.  Instead, it had everything to do with emotions dictating the investment decision.

10.  Whether the security will trade above his purchase price a year from now is irrelevant.

11.  Even if that happens, it's just foolish to dismiss the investment as an intelligent one because the investment process was manipulated by emotional decision making.  

12.  Next to taking a loss, nothing is more painful than the aforementioned chain of events.

13.  Learning to say no until the price is right is of paramount importance.


Referring to the above example, the ultimate failure (or success) of the investment decision was not based on intelligence but on emotion. The investor could not allow himself to "miss" the continued rise in the price of stock.  Disregarding any fundamentals whatsoever, he made the assumption that because the shares had continued to go up for weeks, they would continue to do so.  What is important here is not the investment performance but rather the process employed to make the investment.

Discipline is what separates sensible market loss from foolish market loss.  If you are disciplined and your approach to investment is sound and businesslike, your winners will more than compensate for your losers.  The undisciplined investor is the one who racks up losses similar to the example given earlier.  Succumbing to investment losses in this manner can mean the difference between an above-average and a below-average investment track record.

In cases like this, be disciplined enough to walk away and search elsewhere.  Always remember that any business is undervalued at one price, fairly valued at another, and overvalued at yet another.  The intelligent investor's goal is to buy at the undervalued price, avoid at the fairly valued price, and sell at the overvalued price.  Only by maintaining a very disciplined approach can this strategy be carried out effectively.