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Retailer Aeon's Asian finance operations deliver record profit

Personal lending and credit cards on the rise in Thailand and Malaysia

Aeon has teamed up with Thai grocery chain Big C to issue branded credit cards.   © Reuters

TOKYO -- Financial services in Asia propelled Japanese retail group Aeon to a record first-quarter operating profit, with growth in credit card users helping offset weakness in its domestic business.

Profit climbed 8% on the year to 39.6 billion yen ($358 million) for the three months through May, reaching a new high for that quarter for a second year in a row, the company reported on Wednesday. Financial services accounted for nearly all of this increase, adding an estimated 3 billion yen to operating profit.

Since last year, Tokyo-based Aeon Financial Service, a listed subsidiary of the group, has worked with Thailand's Big C supermarket chain to issue branded credit cards. Workers wearing Aeon name tags and offering to sign up customers are now a common sight in stores throughout the country.

The financial unit's growth was previously concentrated in Japan, where users of its credit cards number around 28 million. 

But the growth in the March-May quarter came almost entirely from overseas, fueled by increases in personal consumption as Southeast Asian economies expand.

In Thailand, corporate partnerships, such as that with Big C, have built up Aeon's credit card and consumer loan businesses. In Malaysia, more customers are buying expensive scooters on credit. Financial services are  "not just an example of synergies within the Aeon group, but are expanding in their own right," an Aeon executive said.

Overseas retail and real estate operations also contributed to first-quarter earnings growth. Non-Japanese operations brought in about 20% of all operating profit, with a 5.1 billion yen gain offsetting a 2.1 billion yen decline in earnings in the home market.

How financial operations will fare in the future is unclear, as Asian emerging markets have begun raising interest rates in line with U.S. monetary tightening.

Meanwhile, Aeon's mainstay general merchandise stores in Japan continued to struggle, posting a 4.5 billion yen operating loss. While this is an improvement from the year-earlier 6.3 billion yen loss, it marks the fifth straight year of losses during the first quarter.

Group net profit climbed 78% on the year to 6.5 billion yen, around half the record of 13.1 billion yen from March-May 2013. Profit distributions to minority shareholders diluted the gains from brisk financial and real estate operations to the bottom line.

Investors seem split over Aeon's prospects. Profit-taking knocked shares down 8% from an 11-year high reached on June 13. But "mid- to long-range expectations have not changed," said Masayuki Kubota of the Rakuten Securities Economic Research Institute.

Aeon forecasts 43% growth in net profit to 35 billion yen for the year ending February 2019. This estimate is unchanged from the beginning of the fiscal year, as March-May earnings were roughly as expected, according to the company.

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