KUALA LUMPUR: Aeon Co (M) Bhd, which operates the Aeon and MaxValue retail stores and Aeon Big hypermarkets and supermarkets, expects the domestic market to remain challenging this year, as consumers are still adjusting to the goods and services tax implemented in April.

Aeon chairman Datuk Abdullah Mohd Yusof said nevertheless, the group remains confident in meeting the challenges head-on.

"After consumers get used to the changes in the new tax system, they will start shopping again, especially in the upcoming festive periods," he told reporters after the group's annual general meeting yesterday.

After enjoying four consecutive years of steady growth, Aeon (fundamental: 1.75; valuation: 0.2) saw its net profit for the financial year ended Dec 31, 2014 (FY14) drop 7.9% to RM212.71 million from RM230.96 million in FY13.

However, its net profit rebounded for the first quarter ended March 31, 2015 (1QFY15), growing 5.4% to RM49.4 million or 3.52 sen a share from RM46.88 million or 3.34 sen a share a year ago. Revenue was up by 17.1% to RM1.11 billion from RM945.51 million in 1QFY14.

Abdullah blamed the net profit decline in FY14 on the rising cost of living and operation costs, as well as an increase in its capital expenditure (capex) for expansion.

“The [implementation of the] minimum wage also caused [the] costs to go up. The cost of doing business has risen. We have also been accelerating our expansion to have a bigger market share,” said Aeon managing director Nur Qamarina Chew Abdullah.

Aeon has set aside RM700 million as capex for FY15, an increase from about RM670 million last financial year.

Abdullah said the budget had been earmarked for the development of upcoming Aeon malls, namely in Shah Alam, Selangor and Klebang, Melaka, which are slated to open in 4Q15.

The group will also open malls in Kota Baru, Kelantan by 2Q16, and Kuching, Sarawak in 2Q17.

The overall occupancy rate of its malls currently stands at 93%, a number that Abdullah said is a "fairly good" average.

Yesterday, Aeon shares closed 0.96% higher at RM3.16, with some 1.77 million shares traded. It closed with a market capitalisation of RM4.39 billion.

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This article first appeared in The Edge Financial Daily, on May 22, 2015.