This article first appeared in The Edge Financial Daily, on May 20, 2016.

KUALA LUMPUR: Aeon Co (M) Bhd is allocating RM650 million for this year’s capital expenditure (capex), a major portion of which will be used to open two new outlets in Kempas, Johor and Kuching, Sarawak next year.

Executive director Poh Ying Loo said 30% to 40% of the capex will be channelled towards refurbishing existing outlets, including those in Mid Valley, Kuala Lumpur and Queensbay Mall, Penang, as well as Aeon Shopping Centre in Taman Maluri, Cheras and Aeon Tebrau City, Johor Baru.

The capex will also be used to complete the group’s land purchases, he told a press conference after the company’s annual general meeting.

“We have already spent RM250 million,” said Poh. “Aside from internally generated funds, we are also leveraging on borrowings,” he added.

Aeon has established twin debt facilities to raise up to RM1 billion in Islamic securities, to be used for expansion or acquisition purposes, among others.

The group opened Aeon Mall Shah Alam on March 10 and Aeon Mall Kota Baru on April 28.

Poh said the two malls were originally planned to be opened earlier, but were delayed to this year due to the challenging environment.

Last year, Aeon was hit badly by the impact of the goods and services tax (GST), the weaker ringgit and higher cost of living, as well as increased cost of doing business.

Poh said the impact of these economic factors had also caused some of its tenants to seek negotiations for lower rates, but the impact is minimal on the group.

Separately, Aeon yesterday announced that its net profit fell 41.88% to RM28.71 million for the first quarter ended March 31 (1QFY16), from RM49.4 million a year ago, on weaker consumer sentiment and the pre-GST buying by consumers in 1QFY15.

Revenue declined 2.7% to RM1.08 billion from RM1.11 billion.

Revenue from its retail business fell 3.9% to RM932.5 million, but revenue from its property management services segment grew 5.1% to RM143.2 million, mainly due to contributions from its new shopping centres.

Last year, the group’s malls recorded a lower average occupancy rate of 90% as smaller tenants chose to cease their businesses under the current business environment.

Aeon managing director Nur Qamarina Chew Abdullah said this year, the company aims to achieve a higher average occupancy rate of 94%.

She said last year, the group saw a decrease in customers by up to 5% and buying power was weaker when compared with the past.

This year, the group will be refocusing its strategies to attract more customers and boost purchases, she said.

Chew said the group’s strategy like Thursday savers, with perishable goods priced attractively, has attracted customers.

“The programme has achieved a double-digit growth. So it shows that people want to have quality food,” she said.

She also said the group plans to improve its e-commerce platform, Shoppu, which was launched in November last year.

It has generated over RM200,000 in monthly revenue and there is room to improve, especially its merchandising system, she added.

“We are focusing on non-food areas — electrical, fashion, information technology — which have better margins.

Aeon chairman Datuk Abdullah Mohd Yusof said despite this, the group will have a challenging year ahead, with more competition vying for market share, but hopes to achieve better results this year.

“We will have to fight them (competitors),” he said.

“We have a lot of platforms to leverage on such as size and customer service. That is how we have been able to maintain our position,” he added.

Aeon shares closed unchanged at RM2.80 yesterday, with a market capitalisation of RM3.93 billion.