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This article first appeared in The Edge Financial Daily on May 28, 2018

AEON Co (M) Bhd
(May 25, RM2.42)
Maintain outperform with a higher target price (TP) of RM2.60:
First quarter of 2018 (1QFY18) core net profit (CNP) of RM27.9 million (+7%) came in within our/consensus expectations at 23%/24% of full-year estimates. No dividend was declared for the quarter, as expected. The group typically pays its dividend in fourth quarter.

 

Year-on-year, 1QFY18 revenue increased by 4% from the stronger performance in both division of retailing business division (+3%) and property management division (+4%). The positive growth was attributed to the stronger contribution from the opening of a new shopping mall in September 2017 (in Kempas, Johor) and supported by shopping malls that were renovated and expanded in the previous year. Subsequently, 1QFY18 earnings before interest and tax (Ebit) were higher by 16%, with improved margin by 0.6 percentage point to 5.4% from 4.8% in 1QFY17, attributed to the higher Ebit in both the retailing business division (+38%) and property management division (+6%), as a result of better marketing and pricing strategies. CNP grew slower by 7% due to a higher effective tax rate of 43.9% (1QFY17:38.9%).

Quarter-on-quarter 1QFY18 revenue increased by 4% due to better Chinese New Year festive season sales compared to the usual year-end promotion in 4QFY17. Nevertheless, CNP plunged 31% due to lower other operating income by RM1.5 million to RM21.3 million in 4QFY17 (year-end rebate voucher recognition in 4QFY17 as other operation income).  

With the zero-rated goods and services tax (GST) starting June, AEON Co (M) Bhd may lower the prices, which will encourage consumer to spend more. The management noted that it will continue to employ appropriate marketing and pricing strategies for its  retailing business,, and seek to expand its supermarket business and

online e-commerce presence.

For property management services, the company expects the occupancy and rental rates to remain stable and sustainable throughout the year. In 2QFY18, the group opened one new AEON mall at Kuching and in 1QFY19, the group plans to open another mall in Negeri Sembilan. The group has set aside RM400 million in capital expenditure this year (FY17: RM500 million) to build the  new mall and renovate existing ones.

Maintain “outperform” with a higher TP of RM2.60 based on the revised 26.5 times financial year 2019 estimate (FY19E) earnings per share (EPS), at its five-year historical mean price-earnings ratio (PER) (from TP of RM2.00 based on 23.5 times FY18E EPS, implying -0.5 standard deviation of its 5-year historical mean PER). — Kenanga Research, May 25

 

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