AEON Credit Service (Asia) Company Limited reported a 2.8 percent decline in its full year net profit as the recovery in loan demand remained slow and fierce competition eroded its overall interest margin.

Net profit for the year ended February 20, 2011, came in at HK$252.2 million, down from HK$259.4 million in the previous year as revenue fell 4.3 percent to HK$1.11 billion from HK$1.16 billion in the previous financial year.

Credit card operations, the company's core business, managed to sustain its growth, helping to offset a decline in the installment loans and hire purchase operations.

Revenue from its credit card business was up 2.7 percent to HK$763.8 million, which accounted for 68.3 percent of the group's total revenue for the financial year.

"Despite the steady recovery of Hong Kong's economy and improving unemployment rate, uncertainty still remains in Hong Kong and the mainland market; thereby the consumers generally took a cautious approach in borrowing activities," said AEON Managing Director Masanori Kosaka in a statement accompanying the results.

As a result, the company saw a reduction in revenue from installment loans and hire purchase operations, which fell by 13.4 percent and 23 percent respectively, he noted.

Meanwhile, revenue from its insurance operation rose to HK$24.9 million from HK$20.4 million in the previous year.

The growth in its credit card business came after the company aggressively launched a series of promotional activities to boost card acquisition and activation during the year, Executive Director Barry Fung told a press briefing Wednesday.

The company says it plans to continue to focus on its core business. "The credit card business will be our focus this year. We will widen our card acquisition channels by issuing different new co-brand cards and enhance new customer ratio. We aim to increase the card base by 140,000 this year," said Fung.

However, the company sees challenges ahead in this segment, particularly in terms of fiercer competition.

Big local banks continue to be the strongest competitors in the credit card landscape, while mainland banks are also trying to grab a piece of the pie, he said.

Latest data from the Hong Kong Monetary Authority showed that the total number of credit cards in circulation in the city was 15.5 million at the end of 2010, up 6.6 percent from 2009. The total value of card transactions was HK$106.3 billion in the fourth quarter of 2010, jumping 20.4 percent compared with the same period in 2009.

Given the low interest rate environment, margins are expected to remain stable while the cost-to-income ratio is likely to fall even under current inflationary environment, the company said.

"The positive economic policies and measures implemented in Hong Kong and the mainland are expected to continue to benefit the targeted market segment of the company, thus creating more sales opportunities," said the company.

Commenting on the impact of the earthquake and nuclear crisis in Japan, the Japan-headquartered company said the negative effects could be offset by their diversified partnership. Many of the company's business partners are Japanese restaurants and stores.

The company declared a final dividend of HK$0.16 per share, unchanged from the previous year.

China Daily

(HK Edition 04/21/2011 page3)