JPMorgan cuts AEON Financial stock rating to Underweight

On Tuesday, JPMorgan analysts downgraded AEON Financial Service Co., Ltd (8570:JP) (OTC:AEOJF) stock from Neutral to Underweight, adjusting the price target to ¥1,150 from the previous ¥1,270. The downgrade follows a review of the company’s fiscal year 2024 results and fiscal year 2025 guidance. Analysts at JPMorgan have revised their earnings forecasts, leading to a lower price target through December 2025.

The decision to downgrade AEON Financial Service’s stock rating was influenced by multiple factors. Analysts expressed concerns over the company’s overseas business, particularly in emerging markets, which they noted has a small capital buffer and carries high uncertainty. Additionally, they pointed to the uncertain outlook for profitability improvement in AEON’s domestic business as a factor that justifies a discount.

The analysts highlighted a discrepancy between the company’s share price movement and its fundamentals. Despite the share price having risen by 13.0% since the announcement of full-year financial results on April 10, as of May 9, compared to the TOPIX’s increase of 7.6%, JPMorgan suggests that the gap with the fundamentals is widening. This divergence has raised concerns about the sustainability of the stock’s current valuation.

JPMorgan also noted that it may be premature to incorporate expectations for a review of the co-listing of the parent company and subsidiary into AEON Financial Service’s stock price. The analysts believe that the market’s current expectations might not fully account for the risks and uncertainties surrounding the company’s earnings and potential downward revisions to consensus estimates.

The downgrade serves as a cautionary signal for investors regarding AEON Financial Service’s stock, as JPMorgan advises a more conservative stance on the company’s shares in light of the challenges identified.

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