Results

• Above expectations – Excluding the exceptional gain of RM14.2m that was recognised in the 2nd quarter, Aeon’s core earnings fell 14% yoy to RM198.5m from RM231.0m. This came in above our estimation at 114%, but below consensus at 93%.

Deviations

• Lower than expected operating expenses and effective tax rate. Higher than expected other operating income.

Dividends

• Declared first and final dividend of 5 sen/share, translating to dividend yield of 1.6%.

Highlights

• YTD FY14 review… Yoy revenue increased 6% to RM3705.5m from RM3514.4m. Retail and property management services segments recorded 5% and 8% growth yoy, respectively. This is primarily due to the opening of new general merchandise stores and shopping centres.

• The group’s property management services segment continues to excel, registering an increase of 8% revenue growth yoy. Its operating profit improved 25% yoy. Aeon plans to open new stores in Klebang and Shah Alam in 2015 and another Aeon in Kota Bharu. This bodes well with its expansion strategy.

• Retail operating profit was down 31% yoy due to: (1) poorer retail sales mix; (2) higher initial start-up costs; (3) Aeon’s 30th anniversary promotional expenses. The weak consumer sentiment required a significant A&P campaign to entice consumers into spending amidst the already weak macro environment, thus, resulting in higher marketing costs.

• 4QFY14… Aeon achieved revenue growth of 4% qoq and yoy. Overall core PATAMI improved 72% Qoq. Fourth quarter has traditionally been the strongest quarter for the group which historically represents circa 32-40% of full year core PATAMI.

• Outlook… Moving forward, we believe the melancholic consumer sentiment and spending will echo throughout 2015, due to the implementation of GST as consumers adjust to new prices. However, we do expect some pre-GST spending in the pipelines, AEON will benefit from this in 1Q15.

Risks

• Weak consumer sentiment and spending;
• Threat of intensifying competition;
• Difficulties in executing expansion; and
• Higher than expected new store expenses.

Forecasts

• Pending update from management.

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 RM3.12 based on unchanged 20x P/E FY15 EPS 15.6 sen or 1 SD above 3-year historical average P/E (see figure #5).

Source: Hong Leong Investment Bank Research - 27 Feb 2015