AEON Credit valuations to hinge on banking arm
PETALING JAYA: Aeon Credit Service (M) Bhd 's valuations will likely be driven by the performance of its loss making subsidiary, AEON Bank (M) Bhd, which is Malaysia's first Islamic digital bank.
AEON Credit's management expects the bank to only post a profit in financial year 2029 (FY29) and to run losses till then due to expansion and product development related costs.
At its AGM on June 25, AEON Credit had guided to RM80mil to RM90mil in associate losses from its 50%-owned digital banking venture in FY26.
'This represents a 17.1% to 31.8% year-on-year (y-o-y) increase from the RM68.3mil loss recorded in FY25 and exceeds our RM75mil loss forecast by 7% to 20%. The updated guidance also surpasses consensus estimates of RM60mil by 33.3% to 50%.
'Further checks with AEON Credit revealed that the higher projected losses are driven by the rollout of expanded product offerings under AEON Bank, including a personal financing facility of up to RM10,000, business banking services and term deposit offerings,' CIMB Securities said in its report.
The research house noted that the expansion entailed higher upfront costs, particularly in digital infrastructure and core banking systems, including cloud deployment, cybersecurity and regulatory compliance.
AEON Bank is projected to see losses peak in FY26 and gradually ease from FY27 with breakeven targeted in FY28 and profitability by FY29.
The financing company also guided to minimal impact on its business from the expanded sales and service tax (SST) apart from RM1.8mil in SST related costs for FY26 (year ending February).
To improve its collections, AEON Credit expects to finalise discussions with two agencies to explore the potential implementation of a salary deduction scheme for civil servant borrowers by this month. This market segment accounts for 19% of its customer base.
It might not fully mitigate the risk of rising impairments, particularly in light of elevated household debt levels and living costs.
The recent increase in civil servant bankruptcies – triggered by the Malaysian Anti-Corruption Commission's 'Op Sky' investigation and the implementation of Malaysia's 'second chance policy' – may continue to weigh on the creditworthiness of this segment, potentially limiting the effectiveness of the salary deduction mechanism over the longer term.
AEON Credit's impairment losses surged 32.9% y-o-y in FY25, driven by an 18.4% y-o-y increase in delinquent accounts. This resulted in a higher net credit cost of 3.87% in FY25 (FY24: 3.35%) and an increase in the non-performing loans ratio to 2.64% (FY24: 2.57%).
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
The Star
30 minutes ago
- The Star
Inflation likely to trend higher from this month
PETALING JAYA: While June recorded a lower-than-expected inflation rate of 1.1% – the lowest in 52 months, the disinflation trend is not expected to sustain in the months ahead. June's headline inflation brought inflation for the first half of 2025 (1H25) to 1.4% year-on-year (y-o-y), lower than the 1.8% recorded in 1H24, indicating continuing disinflation since its peak in 2022. The rise was lower than the 1.2% increase forecast in a Reuters poll. Core inflation during the month was unchanged from May at 1.8%. The effects of the expanded sales and service tax (SST), wage adjustments under civil service reforms and the RON95 subsidy rationalisation initiative in 2H25 continued to pose key upside risks to the inflation outlook. UOB senior economist Julia Goh said headline inflation is expected to trend higher from July because of the potential 'second-round effects' from the expanded SST, despite its limited direct impact, as well as 'low base effects' from the previous year. 'We anticipate upward pressure from key components particularly food away from home and services inflation,' she told StarBiz. Goh said the tax-induced inflation effect is expected to be one-off, but also cautioned that the 'long-anticipated' RON95 subsidy rationalisation initiative remained as a key uncertainty, and 'could alter the inflation path'. 'Nevertheless, we expect full-year inflation to average at 1.8% – which is below Bank Negara's projected range of 2% to 3.5% (2024: 1.8%),' she said. Goh maintained that the inflation outlook remained benign over the policy horizon. She opined that another 25 basis points cut in the overnight policy rate to 2.5% by the end of the fourth quarter of 2025 was plausible should downside risks to growth – particularly from potential tariff actions and geopolitical tensions escalate. 'A more accommodative monetary policy stance may be warranted to support domestic growth into 2026, considering that monetary policy typically takes about a year to exert its full impact on the economy,' she said. iFAST Capital research analyst Kevin Khaw Khai Sheng said although the June inflation data came in within his expectation, the disinflation trend may not be 'sustainable' given measures such as targeted subsidy rationalisation, possible fuel price flotation, and wage adjustments for the civil service. 'We believe that the consumer price index (CPI) has already bottomed out, and an increase is possible in the next one to two months. 'One thing that we are closely observing is the service cost which tends to be sticky. That said, it is not alarming at this juncture, as we have not seen a huge spike,' he said. According to Khaw, the base case is for the central bank to maintain its policy rate in 2H25 given that inflation remains manageable. That said, he noted that an additional rate cut is possible in the event of unprecedented external economic shocks. Meanwhile, Sunway University economics professor Dr Yeah Kim Leng said the disinflation trend could prolong due to a combination of external and domestic factors. Externally, global uncertainties are having a depressing impact on demand which could dampen commodity prices. 'Global commodity prices especially fuels have eased as US global tariffs and geopolitical uncertainties have dampened consumer and business spending. 'They have contributed to the disinflationary trend for most countries except for those facing tariff escalations and the ensuing supply chain shocks,' he said. Yeah said supply chain adjustments to tariff increases would exert upward price pressures although the effects would be uneven across countries since higher import tariffs would raise producer and consumer prices. 'As exports to the United States are being diverted due to unilateral tariffs imposed by the Trump administration, excess supplies in Asia and other regions could also exert downward pressures on prices, thereby prolonging disinflation in these countries including Malaysia,' he said. A stronger ringgit will also ease imported prices. As of the end of June, the local unit has strengthened by over 5% against the US dollar. 'The delay in the RON95 subsidy rationalisation will likewise postpone the onset of a potential source of inflation, although this will likely be offset by higher price pressures resulting from the increase in the national minimum wage and labour shortages in selected industries,' Yeah said. OCBC senior Asean economist Lavanya Venkateswaran said June's inflation figures were weaker-than-expected on account of transportation inflation. She added that the overall inflation picture had been benign with headline CPI averaging 1.4% y-o-y in 1H25, and she had reduced the 2025 headline CPI forecast to 1.5% from 2% previously. 'The inflation prints for 1H25 paint a picture of well-contained price pressures. 'Subdued headline inflation of 1.4% in 1H25 and reduced prospects of RON95 rationalisation, following the government's need for a more detailed review of the mechanism have led us to reduce our full year forecast. We had previously expected a 20% to 25% increase in RON95 prices from October,' Lavanya said. While she had pencilled in another 25 basis point rate cut from Bank Negara for the remainder of the year, Lavanya said it was important to look at the trajectory of core inflation as a gauge for domestic demand conditions. 'Core inflation remaining higher than headline inflation suggests that domestic demand is holding up even as the more volatile components of inflation eased in 1H25,' she added.
New Straits Times
2 hours ago
- New Straits Times
Abang Johari: Federal-state ties remain strong for Sarawak's progress
MIRI: Sarawak Premier Tan Sri Abang Johari Openg has reiterated that the close cooperation between the state and federal governments would continue in the common interests of both the country and Sarawak. He said the Gabungan Parti Sarawak (GPS) government, which he leads, appreciates the cooperation currently enjoyed between the state and the federal government under Prime Minister Datuk Seri Anwar Ibrahim. "In fact, at the federal level, Sarawak is represented by a deputy prime minister, namely Datuk Sri Fadillah Yusof, in addition to other ministers from Sarawak," he said in his speech at the Sarawak Day celebration here yesterday. He expressed confidence that Sarawak's efforts to achieve greater prosperity would not undermine the wider national objective of advancing the country's overall development. He said the increase in Sarawak's revenue, particularly through the Sarawak Sales Tax (SST), would not diminish the country's revenue as the federal government has sufficient avenues to boost national income without burdening the people. Abang Johari said the GPS government would continue to fight for Sarawak's rights under the Malaysia Agreement 1963 (MA63) through ongoing negotiations with Putrajaya. "Sarawak has successfully regained nine rights under MA63 and the GPS government will continue its efforts to restore all rights that have been eroded over the years," he said. He noted that Sarawak started as a state with many shortcomings and widespread poverty, especially in rural areas, during the formation of Malaysia. "Now we are grateful that Sarawak's economy has shown very encouraging growth," he said, adding that last year Sarawak recorded its highest ever revenue of RM14 billion compared to RM13.3 billion in 2023. He said this year he had presented the largest budget in Sarawak's history amounting to RM15.8 billion, opening up opportunities for a more inclusive economy. "Under the powers provided by the Federal Constitution, the state has begun to enjoy more of its oil and gas revenues through the SST imposed on petroleum products as well as through profit sharing between Petronas and Petros," he said. The premier said the World Bank had recognised Sarawak as a high-income region for three consecutive years since 2022 based on a Gross National Income (GNI) per capita of RM73,100 (US$17,000) in 2024, a figure that surpasses the threshold of RM63,800 (US$15,000) set by the bank. He said this status had placed Sarawak in fourth position after the Kuala Lumpur and Labuan and Penang, surpassing Selangor. He said the state government would continue to ensure Sarawak's resources are given added value through the creation of downstream industries, particularly in the oil and gas sector, guided by the long-term Sarawak Gas Roadmap (SGR). He expressed confidence that when fully implemented within 10 years the SGR would attract investments worth RM300 billion and generate RM120 billion in output from the product and service chain. "New industries will also be created, especially in the renewable energy sector, to generate up to 15,000 megawatts of energy by 2035, not only for domestic consumption but also for export to Asean countries," he said.
Barnama
6 hours ago
- Barnama
IILM's US$800 Mln Short-term Sukuk Oversubscribed 2.3 Times
BUSINESS KUALA LUMPUR, July 22 (Bernama) -- The International Islamic Liquidity Management Corporation (IILM) has reissued a total of US$800 million (US$1=RM4.23) in short-term sukuk across three tenors, with the offering oversubscribed by 2.3 times. In a statement today, IILM said the auction attracted US$1.9 billion in bids from its network of primary dealers and global investors. It said the issuance comprised a US$305 million two-week tenor at 4.40 per cent, a US$355 million three-month tenor at 4.49 per cent, and a US$140 million six-month tenor at 4.38 per cent. 'Today's successful completion of the short-term sukuk transaction marks the IILM's 13th auction year-to-date with a cumulative issuance of US$13.15 billion across 39 sukuk series of varying tenors,' IILM said. Chief executive officer Mohamad Safri Shahul Hamid said the outcome reflected continued investor interest in shariah-compliant liquidity instruments, despite prevailing global uncertainties. 'Today's auction outcome underscores the continued strength of investor demand for high-quality Islamic liquidity instruments, despite ongoing uncertainty surrounding the United States (US) Federal Reserve's rate trajectory and broader shifts in global monetary policy,' he said. Mohamad Safri added that financial markets remain cautious as central banks weigh persistent inflationary pressures against signs of moderating economic growth. 'The IILM's consistent ability to attract strong participation across all tenors reflects the market's confidence in our sukuk programme as a dependable tool for short-term liquidity management,' he said. The IILM's short-term sukuk programme is rated A-1 by S&P Global Ratings and F1 by Fitch Ratings, with a total issuance limit of US$6 billion.
