AEONTS – Expect weak 2QFY26F; good dividend

Worse than our earlier expectation, we forecast AEONTS’ 2QFY26 earnings to fall 8% QoQ (higher ECL) and YoY (lower NII). We cut our FY2026 earnings forecast by 7%, on credit cost and loan growth. To reflect lower D/E, we raise FY2026F DPS from Bt5.7 to Bt5.95 (48% payout ratio), equivalent to a 6.2% yield. We cut TP to Bt116 from Bt120 but maintain OUTPERFORM on the back of an attractive valuation of 0.8x PBV relative to 11% ROE and a good 6.2% dividend yield.

2QFY26F preview: Down QoQ, YoY. In 2QFY26 (June-August), we estimate earnings at Bt730mn, falling 8% QoQ (higher ECL) and 8% YoY (lower NII). This is worse than our earlier expectation of a QoQ and YoY rise. Our forecast is based on the following assumptions.

1) Credit cost: +134 bps QoQ (+36 bps YoY) to 8.97%, because of rising NPLs, mainly HP loans of AEON Specialized Bank (Cambodia). We expect credit cost to remain high until 3QFY26. AEONTS will deconsolidate AEON Specialized Bank (Cambodia) at YE2026 after its holding dilutes to 43% from 50%. The company had a sizable management overlay of Bt140mn for the credit card minimum payment hike and Bt230mn for the Middle East conflict, which could be released later. We thus expect credit cost to ease in 4QFY26.

2) Loans: -2% QoQ (-5% YoY) on tighter credit policy.

3) NIM: +16 bps QoQ (-16 bps YoY). Cost of funds is expected to slightly fall further.

4) Non-NII: +14% QoQ (+10% YoY) due to gain on sale of NPLs and higher bad debt recovery. We expect gains on NPL sales to be Bt110mn in 2QFY26. There will be additional small gains to be realized in 3QFY26.

5) Opex: -2% QoQ (flat YoY) on cost controls, despite one-off expenses from its AMC (ECL incurred by the change in accounting policy).

Cut earnings forecast. We cut our FY2026 earnings forecast by 7% because we raised credit cost forecast by 15 bps to 8.4% and slashed loan growth forecast by 2 ppt to -2%. We now expect FY2026 earnings to be flattish, underpinned by -2% loan growth, a 32 bps fall in NIM (on lower loan yield), a 10 bps fall in credit cost, a 6% rise in non-NII mainly from better bad debt recovery, and tighter opex.

Decent dividend yield. To reflect falling D/E because of loan contraction, we raise FY2026F DPS from Bt5.7 to Bt5.95 (48% payout ratio), equivalent to a 6.2% yield. We expect interim DPS to be Bt2.75 (vs. Bt2.55 in 1HFY25), translating to a 2.8% yield. Its D/E is expected to fall to 1.9x in FY2026 from 2.2x in FY2025.

Treasury stock program. AEONTS currently has a share repurchase program budgeted at up to Bt300mn to purchase up to 2.5mn shares (a ceiling of 1% of total shares), which will end on October 19, 2026. Cumulative number of shares repurchased was 1.22mn (0.49% of total shares).

Maintain OUTPERFORM but cut TP. We maintain OUTPERFORM rating on the back of an attractive valuation of 0.8x PBV relative 11% ROE and a good 6.2% dividend yield. However, we cut mid-2027F TP from Bt120 to Bt116 (based on 0.95x PBV).

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.