Asset quality improving, but NIM narrowing
After the analyst meeting, we maintain our Outperform rating with an unchanged TP of Bt149 (1.35x PBV for FY2025) on the back of an expected gradual improvement in asset quality, which is believed to a key share price driver. We expect a reduction in credit cost to be partly offset by a squeeze in NIM with modest loan growth in FY2025.
Gradual improvement in asset quality. AEONTS expects continued improvement in asset quality and a further reduction in credit cost in 4QFY24 and FY2025, backed by tailwinds from government stimulus and the BoT’s relief measures. Its asset quality will benefit from the minimum wage hike to Bt400/day (up 2.9% on average), the Bt10,000 cash handout to the eligible elderly and the BoT’s debt relief measures. We expect these same factors to reduce NPL inflow, which will bring credit cost down 17 bps QoQ to 7.79% in 4QFY24 and 25 bps to 8.15% in FY2025.
Expect gain on sale of written-off NPLs in 4QFY24. AEONTS is planning to sell written-off NPLs in 4QFY24 (December-February) and we anticipate a gain of Bt170mn will be booked from the sale (on par with the 2QFY24 figure).
Continued good growth in bad debt recovery. Bad debt recovery rose 17% YoY in 9MFY24, in line with our full-year forecast of 16%. We expect continued good growth in bad debt recovery at 16% in FY2025, underwritten by tailwinds from government stimulus and the BoT’s relief measures.
Weak loan growth. We expect a 1% contraction in loans in FY2024 (-1.7% YTD as of 3QFY24) due to a hike in minimum credit card payment to 8% from 5%, tighter credit and larger write-offs. We expect a modest pickup in loan growth to 2% in FY2025.
Narrowed NIM. We expect NIM to fall in FY2025 as a result of: 1) the BoT’s PD measure and 2) cash back of 0.5% interest on credit card loans in 1H25 and 0.25% in 2H25 for debtors who make the 8% minimum repayment. We forecast an 18 bps narrowing in NIM in FY2025.
4QFY24 and FY2025 outlook. We expect 4QFY24 earnings to be flattish QoQ as lower ECL and larger gain on NPL sales will be offset by a return to a normal effective tax rate, but down 28% YoY due to higher ECL from the lower-than-usual ECL in 4QFY23. We now expect fairly stable earnings (+7%, if exclude the FY2024 one-off items) in FY2025 as the lower credit cost is expected to be offset by lower NIM and absence of one-off items (gain on investment and tax).
Maintain Outperform with unchanged TP. We maintain our Outperform rating with an unchanged TP of Bt149 (1.35x PBV for FY2025), backed by expected gradual improvement in asset quality, which we believe is a key share price driver.
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.
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