Forget supermarkets, Japan's Aeon has ace in Malaysian financing

[KUALA LUMPUR] For Japan's Aeon, giving individuals loans to buy cars and motorcycles has been a much better business in Malaysia than selling goods in its supermarkets.

Shares of Kuala Lumpur-based Aeon Credit Service (M) Bhd have gained 45 per cent in the past year, making it the best-performing lender in a gauge of the Southeast Asia nation's financing companies. Retailer Aeon Co (M) Bhd has fallen 11 per cent in the period to trade near their lowest level in more than four years. Both are units of Japan's largest supermarket and mall operator.

A 25 per cent surge in third-quarter net income "positively affected the demand for our shares," Aeon Credit's chief financial officer Lee Kit Seong wrote in an e-mailed response to questions. Aeon's Malaysian supermarket unit declined to comment on its market performance.

'HIGH RISK, HIGH RETURNS'

Aeon Credit's share price increase means it's "now considered a high-risk, high-return stock," said Ang Kok Heng, chief investment officer at Kuala Lumpur-based Phillip Capital Management Bhd. The firm sold most of its shares in the company into last year's rally, helping its fund return 15 per cent to beat more than 90 per cent of its peers. "Although Malaysia's economy has slowed, the company's performance has been cushioned by its high margins."

Malaysia's household debt in Malaysia is at a record, the jobless rate is close to the highest level in more than six years, and consumer sentiment is near the lowest in a year, with some employers and analysts predicting more layoffs. A report due Friday may show the nation's economy last year grew at the slowest pace since a contraction in 2009.

Aeon Credit's continuing allure to analysts is seen in its four buy and two hold ratings, while its target price implies a 12-month return of 3.6 per cent. The supermarket business, on the other hand, has six sell recommendations and one hold, with the price target showing expectations of a 3.5 per cent drop.

Any further slowdown in Malaysia's economic growth may leave Aeon Credit vulnerable to defaults on its loans, said Mr Ang, who helps oversee RM2.5 billion (S$798 million) in assets. Still, Mr Ang is willing to wager on the lender continuing to deliver returns.

"A lot of investors are holding the stock cautiously now after the out-performance," said Mr Ang. "We are still looking to buy when the opportunity arises."

BLOOMBERG