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

Kuala Lumpur-based Aeon Credit Service (M) Bhd. has gained 45 percent 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 percent in the period to trade near its lowest level in more than four years. Both are units of Japan's largest supermarket and mall operator.

A 25 percent surge in third-quarter net income "positively affected the demand for our shares," Aeon Credit's Chief Financial Officer Lee Kit Seong said. Aeon's Malaysian supermarket unit declined to comment on its market performance.

RHB Bank Bhd. expects Aeon Credit to continue its strong growth and raised its target price to $4.04, wrote analyst Stephanie Cheah in a recent report. Shares of Aeon Credit fell 0.5 percent to $3.57 while Aeon Co. slipped 2.6 percent at the 5 p.m. close in Kuala Lumpur.

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 percent to beat more than 90 percent of its peers. "Although Malaysia's economy has slowed, the company's performance has been cushioned by its high margins."

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.

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 percent. The supermarket business, on the other hand, has six sell recommendations and one hold, with the price target showing expectations of a 3.5 percent drop.

Any further slowdown in Malaysia's economic growth could leave Aeon Credit vulnerable to defaults on its loans, said Ang, who helps oversee $562 million in assets. Still, 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 Phillips' Ang. "We are still looking to buy when the opportunity arises."

SundayMonday Business on 02/19/2017

Print Headline: Japan's Aeon gains in credit, plunges in retail in Malaysia

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