Results

• Below expectations – Aeon’s 1H15 PATAMI of RM65.1m (- 18% yoy) came in below our expectations, accounting for 30% of ours and consensus estimates.

Deviations

• Operating loss of RM18.4m from retail segment.

Dividends

• None.

Highlights

• 1H15 review… Revenues increased by 6.4% Yoy to RM1,918.2m from RM1,803.2m, Retail and Property management services segments recorded a 6% and 8% increase yoy, respectively. Despite this, PBT declined by 33.4% (1H14: RM137.2m vs. 1H15: RM98m). This is attributed to higher operations cost, initial costs associated with new stores openings and coming from a higher base in 1H14 (due to a one off gain on disposal of Land and building of AEON Taman Universiti Shopping Centre of RM14.2m).

• Retail Segment: Registered Operating loss of RM18.4m in 2Q15, dragging down group bottomline performance. Qoq, group PBT of RM22.3m was significantly lower than the preceding quarter of RM70.3m due to the effects of GST implementation and the resulting weaker sales on the back of record low consumer sentiments.

• Property Management segment: The group’s property management services segment registered an increase of 8% revenue growth yoy (1HF14: RM250.9m vs. 1HF15:RM270.2m), this is on the back of greater contributions from its existing and new shopping centres.

• Company outlook… Moving forward, the group expects 2H15 to remain challenging due to subdued consumer sentiment resulting from higher cost of living and the recent implementation of GST.

• We concurred with management. While we expect the property segment contributions to remain relatively flat, we are less optimistic on the retail segment due to the overall lower consumer sentiment in CY15 despite nascent signs of recovery.

Risks

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

Forecasts

• We trimmed our earnings forecast for FY15-17 by 20%-8% to take into account the macro headwinds and the dampened consumer sentiment.

Rating

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

Valuation

• Target Price reduced by 8% to RM2.99 pegged to unchanged 20x P/E based on FY16 EPS of 14.95 sen or 1SD above 3-year historical average P/E (see figure 4)

Source: Hong Leong Investment Bank Research - 28 Aug 2015