[RAM] RAM Ratings affirms AA3 and A1 ratings of AEON Credit's Senior and Subordinated Sukuk Wakalah Programme

RAM Ratings has affirmed the respective AA3/Stable and A1/Stable ratings of AEON Credit Service (M) Berhad’s (AEON Credit or the Group) Senior and Subordinated Sukuk Wakalah Programme as well as the P1 rating of its RM1.0 bil Islamic Commercial Papers Programme. 

The affirmations are premised on the sustained resilience of the Group’s credit metrics, especially asset quality and profitability indicators, through economic cycles. We have also factored in our expectation of extraordinary support from AEON Co., Ltd – the Group’s ultimate parent – and AEON Financial Service Co., Ltd. (AFS), its immediate holding company. AEON Co., Ltd is a prominent Japan-based retail and financial services group. AEON Credit is expected to remain a notable player in the domestic consumer lending space, especially in motorcycle financing. 

The Group’s credit profile reflects its consistently strong track record of managing asset quality despite a sizeable exposure to non-prime borrowers. AEON Credit’s gross impaired financing (GIF) ratio eased to 2.6% as at end-February 2024 (end-February 2023: 2.9%), mainly owing to an enhanced credit framework and stronger collection efforts. By customer profile, GIF stemmed largely from new-to-credit, lower-income and younger borrowers. Lending to this segment has since tightened and related impairment write-offs should taper off this year.  The Group’s GIF coverage stayed robust at 221.3% as at end-February 2024 (end-February 2023: 251.7%), providing a strong loss absorption buffer.

Benefiting from growth in its receivables base of 12.9% and a wider net interest margin, AEON Credit’s pre-tax profit climbed to RM565.2 mil in FY Feb 2024 (FY Feb 2023: RM547.0 mil). Lucrative net interest margins (three-year average: 11.4%) give the Group ample headroom to absorb heftier credit costs (three-year average: 2.5%). While its newly licensed digital bank, AEON Bank, is expected to continue to incur losses, breaking even within five years of commencing operations, we expect the impact on the Group’s overall financials to be manageable. 

AEON Credit’s dependence on wholesale funding is a notable disadvantage when compared to deposit-taking institutions. However, its debt maturities are well spread out while cash balances and unutilised credit facilities covered 1.6 times the Group’s short-term borrowings as at end-February 2024 (end-February 2023: 2.5 times). Gearing (adjusted for fair value of hedging reserves) stood at 3.6 times (end-February 2023: 3.5 times).


Analytical contacts
Ho Chian Leng, CFA
(603) 3385 2527
chianleng@ram.com.my

Sophia Lee
(603) 3385 2619
sophia@ram.com.my