Aeon’s sustainable prospects

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Aeon Co (M) Bhd
(Oct 2, RM3.78)
“Hold” with target price (TP) of RM3.88.
With over 30 outlets, Aeon Co (M) (formerly known as Jaya Jusco) has successfully built a strong brand name, delivering a high quality shopping experience to its customers. Historically, 87% of its revenue was derived from retailing and the remaining from property management services. Its competitive strengths include a solid brand name backed by strong customer loyalty, an experienced management team and an anchor tenant position.

The bases of our investment highlights for Aeon includes defensive and growing earnings base, decent dividend payouts, aggressive expansion capacity, store refurbishment, earnings diversification by entering a new venture with Thailand’s Index Living Mall Co Ltd for furniture retailing, strong balance sheet with zero-borrowings and cash position, and a growing per capita income and urbanisation rate.

We expect Aeon’s financial year 2014 (FY14) core net profit to be rather flattish, about 0.3% to RM231.7 million. This is caused by poorer consumer sentiment in the first half of financial year 2014. However, earnings should improve for the remaining 2014 coming from the year-end festive seasons. Risks to our call include weak consumer sentiment and spending, threat of intensifying competition, difficulties in executing expansion, and higher than expected new store expenses.

We are expecting revenue to grow between 7.7% and 7.9% annually in FY14 to FY16 mainly due to the opening of its new stores, while net profit growth to range between 0.3% and 6%. — Hong Leong Investment Bank, Oct 2

This article first appeared in The Edge Financial Daily, on October 3, 2014.