AEONTS – 2QFY26: Below expectations but higher DPS

AEONTS’s 2QFY26 earnings (-19% QoQ, -19% YoY) missed expectations, on ECLs (mainly from its Cambodian subsidiary) and NIM. We cut our FY2026 earnings forecast by 7% and now expect FY2026 earnings to fall 7%. Despite weaker results, AEONTS announced a higher-than-expected interim DPS of Bt3, representing a 3.3% yield. We maintain our OUTPERFORM rating on the back of an attractive expected dividend yield of 6.65% and an undemanding valuation of 0.77x PBV against 10% ROE for FY2026. However, we lower our mid-2027F TP to Bt108 (based on 0.9x PBV) from Bt116.

2QFY26 result: Miss on ECL and NIM. 2QFY26 earnings (June-August) fell 19% QoQ and YoY to Bt642mn, below INVX's forecast by 12% and the consensus forecast by 18%. The earnings miss was mainly due to higher-than-expected ECLs and a lower-than-expected NIM. We detail the results below.

1) Asset quality: In 2QFY26, NPLs rose 5% QoQ and Stage 2 loans increased by 13% QoQ. The deterioration in asset quality was mainly from its Cambodia subsidiary and HP loans. Worse than expectation, credit cost rose 207 bps QoQ (+109 bps YoY) to 9.71%. LLR coverage slipped to 166% from 169% at 1QFY26. We raise our FY2026 credit cost forecast by 10 bps to 8.5% (flat YoY).

2) NIM: -47 bps QoQ (-79 bps YoY), worse than expectation. Yield on loans fell 43 bps QoQ (-100 bps YoY). Cost of funds rose 8 bps QoQ (-18 bps YoY). We cut NIM forecast by 50 bps to 16.91% (-83 bps) for FY2026.

3) Loans: -1.1% QoQ, -4.4% YoY and -2% YTD, reflecting a tighter credit policy.

4) Non-NII: +12% QoQ (+8% YoY), due to gain on NPL sales.

5) Cost to income ratio: Better than expectation, -364 bps QoQ (-47 bps YoY) on lower opex. Opex decreased 9% QoQ and -6% YoY.

Cut earnings forecast. We cut our FY2026 earnings forecast by 7% and now expect earnings to decline 7% YoY. We expect 3QFY26 earnings to decrease QoQ due to persistently high credit cost and lower gains on NPL sales, while remaining broadly flat YoY. However, we expect earnings to recover QoQ in 4QFY26, primarily driven by the deconsolidation of its Cambodia subsidiary following a reduction in its stake to 43% from 50% and gain on NPL sales.

Higher-than-expected interim DPS. Despite weaker results, AEONTS announced a higher-than-expected interim DPS of Bt3, compared with Bt2.55 in 1HFY25 and our forecast of Bt2.75. This translates into an attractive dividend yield of 3.3%. The XD date is October 21. We slightly raised our full-year DPS forecast to Bt6 from Bt5.95, implying a payout ratio of 52% and a dividend yield of 6.65%.

Maintain OUTPERFORM with a cut in TP. We maintain OUTPERFORM rating, supported by an attractive expected dividend yield at 6.65% and a cheap valuation at 0.77x PBV relative to 10% ROE for FY2026. However, we cut mid-2027 TP to Bt108 (based on 0.9x PBV) from Bt116.

Key risks: 1) Asset quality risk from the economic slowdown, 2) a rise in cost of funds from a rise in interest rates, and 3) ESG risk from market conduct.