AEONTS - 2QFY24: Beat on non-NII and opex

Beating our estimates on non-NII and opex, 2QFY24 reflects a QoQ lower credit cost with a continued rise in NPLs, flattish loans, better NIM, higher non-NII and tighter cost to income ratio. We maintain our Outperform rating with an unchanged TP of Bt158 on the back of: 1) an expected gradual earnings recovery in 2HFY24 and FY2025, 2) a catalyst from the potential policy rate cuts and 3) an improvement in asset quality from the government’s Bt10,000 cash handout to vulnerable groups.

2QFY24: Beat on non-NII and opex. 2QFY24 earnings (June–August) rose 57% QoQ (gain on sale of NPLs and lower ECL) and slipped 2% YoY to Bt822mn, 17% above INVX forecast. The deviation from forecast came from better-than-expected non-NII and lower-than-expected opex. The details are discussed below.

1) Asset quality: As expected, credit cost came down 46 bps QoQ (+39 bps YoY) to 8.69% in 2QFY24 after front-loading ECL for a step up in minimum credit card payment to 8% in 2024 from 5% in 2023. NPL ratio rose 19 bps QoQ to 5.58%. LLR coverage fell to 159% from 168% at 1QFY24.

2) Loan growth: Loans were flattish QoQ (-3% YoY) in 2QFY24. Credit card loans slipped 2% QoQ (due to a step up in minimum credit card payment), personal loans were stagnant QoQ and HP loans rose 9% QoQ (primarily used car loans).

3) NIM: +12 bps QoQ (+18 bps YoY) in 2QFY24. Yield on loans increased 11 bps QoQ (+17 bps YoY) in 2QFY24. Cost of funds inched up 3 bps QoQ (+1 bps YoY) in 2QFY24, less than we had anticipated.

4) Non-NII: +21% QoQ (+14% YoY) from gain on sale of NPLs of Bt172mn (vs. none in 1QFY24, +3% YoY), bad debt recovery (+2% QoQ, +19% YoY) and insurance brokerage income (+7% QoQ, +6% YoY).

5) Cost to income ratio: -287 bps QoQ (+75 bps YoY) to 41.34%. Opex was lower than we anticipated, down 3% QoQ (+3% YoY).

2HFY24 outlook. 1HFY24 earnings accounted for 45% of our full-year forecast
(-8%). We expect 3QFY24 earnings to fall QoQ (no gain on NPL sales) but rise YoY (higher non-NII). In 4QFY24, we expect earnings to rise nicely QoQ (gain on NPL sales and lower ECL) but fall YoY (higher ECL). We now expect FY2024 earnings to slip 8%, with 2% loan growth, stable NIM, 22% growth in non-NII (from bad debt recovery, insurance brokerage income and other income) and a 68 bps rise in credit cost.

Maintain Outperform with an unchanged TP. We maintain our Outperform rating with an unchanged TP of Bt158 (1.4x PBV or 12.3x 2025 PE) on the back of: 1) an expected gradual earnings recovery in 2HFY24 and FY2025, 2) a catalyst from the potential policy rate cuts and 3) a positive impact on asset quality from the government’s Bt10,000 cash handout to vulnerable groups in September.

Key risks: 1) Asset quality risk from uneven economic recovery, 2) regulatory risk from the BoT’s household debt measures, and 3) ESG risk from market conduct.