News

• In an announcement to Bursa Malaysia, Aeon stated that it had entered into an agreement with Ireka Engineering & Construction Sdn Bhd (a subsidiary of Ireka Corporation Berhad) for the acquisition of a piece of freehold land for the development of a shopping centre with car parks and departmental stores cum supermarket.

• The acquired land is located in Pekan Senawang, Daerah Seremban, Negeri Sembilan, measuring approximately 20.8 acres for a cash consideration of RM53.6m (RM59 per sq. ft.).

• We understand that the acquisition will be funded via internally generated funds.

Highlights

• Second land acquired in 2014… With the newly acquired land in Seremban, it makes up a total of two land acquisitions in the year (first was located in Batu Pahat, Johor).

• Strengthening its foothold in N9… To date, Aeon has only one shopping centre in Seremban. We feel that the acquisition is in line with Aeon’s expansion strategy to build more Aeon stores and solidify its presence in Malaysia. Hence, we estimate that capex would be on a high side of RM500-600m for FY14-FY15.

• Furthermore, the acquired land is also located in a prime commercial belt, in the heart of the town centre of Senawang, with good road accessibility (PLUS Highway & LEKAS Highway). Thus, we believe the land transaction of RM59 per sq. ft.) is fairly reasonable.

• Based on the historical trend, we expect the new store to commence operation as an Aeon retail outlet by 2016-2018. With a land size of 909.5k sq. ft., we estimate that the net lettable area could range from 550k to 600k sq ft.

• Overall, we are positive on the land acquisition as it would provide Aeon with additional rental and retail income. Note that its property management division has been the key driver for its earnings.

Risks

• Weakening of consumer sentiment and spending post GST implementation;
• Threat of intensifying competition;
• Slower-than-expected expansion plan; and
• Higher-than-expected new store expenses.

Forecasts

• Unchanged.

Rating

HOLD

We like Aeon for its diversified and unique business model. However, taking into account the presence of short-term macro headwinds and weaker consumer sentiment and spending, we reiterate our HOLD call on the stock.

Valuation

• Target price maintained at RM3.42 pegged to unchanged 21.9x P/E FY15 EPS of 15.6 sen, based on 1 SD above 3-year historical average P/E

Source: Hong Leong Investment Bank Research - 29 Dec 2014