AEON Credit Services (M) Bhd has bagged the award for Highest Return on Equity over Three Years for the second consecutive year. That does not come as a surprise as the financial institution’s ROE was above 30% from FY2013 to FY2015.

Although it dropped below the 30% level in FY2016 and reached 28.3% in FY2017 as shareholders’ equity grew faster than net profit, AEON Credit’s ROE is still the highest among financial institutions.

AEON Credit, whose niche is in the vehicle financing space, has seen its net profit growing from strength to strength over the years. From RM134.13 million in FY2013, it has risen more than 50% to RM228.22 million in FY2016.

In its recent financial year ended Feb 28, 2017, net profit grew 16.1% to RM265.03 million on the back of higher growth in its vehicle and personal financing operations, despite the challenging economic environment.

AEON Credit’s financing portfolio also includes a growing personal financing segment, credit cards, consumer durables and small and medium enterprise financing.

Unlike conventional banks, which are facing challenges in growing their loan books, AEON Credit’s financing receivables have been growing at a double-digit pace. For FY2017, they grew 19.1% to RM6.44 billion from the previous year while in its first quarter ended May 31, 2017, year-on-year growth was a strong 17%.

“Loan demand from AEON Credit’s targeted customers — retail market — is still resilient thanks to its niche market exposure, vis-à-vis many other financial services providers that are facing tougher times in growing their loan portfolios amid the softer economic conditions,” says Kenanga Research in a July 5 report.

However, the research house says these positives could have been priced into its share price, which has risen well over one-third in the past year.

As with all financial institutions, asset quality is always a factor to watch. AEON Credit has seen an improvement in its overall asset quality in FY2017 with a lower non-performing loans ratio of 2.28% compared with 2.47% a year ago. It continued to be stable in 1Q2018 at 2.43%, compared with 2.42% in 1Q2016.

The company says in its FY2017 annual report that its key areas of focus going into FY2018 include branch transformation through web application and self-service terminals, embarking on digital marketing to enhance service levels and introducing innovative cards under the E-money platform. “Our company’s long-term strategy is to continue to serve a wide spectrum of customers in terms of income group, including consumers from the lower socio economic group who may be underserved by the mainstream players, and to offer competitive and flexible product pricing to come up with different product segments for customers having different risk profiles,” it adds.

One point to note going forward is its recently proposed RM432 million cash call, which involves the issuance of two ICULS for every one share held. The cash call is meant to improve its capital adequacy ratio to build an adequate capital buffer, support business growth and improve liquidity to strengthen its financial position. This exercise, assuming full conversion of ICULS, could potentially dilute its FY2018 earnings per share, says Kenanga Research.

Nevertheless, MIDF Research says it is positive about the strong growth of AEON Credit’s earnings. “We believe that the positive growth trajectory will continue in FY2018, given the optimistic prospects for GDP performance this year,” it says in the July 5 report.

Bloomberg data shows there were two “buy”, three “hold” and one “sell” calls on the counter.