Results

• Slightly Below expectations – Aeon’s 9MFY15 PATAMI of RM94.5m (-31% yoy) came in below our expectations, accounting for 53.2% and 48% of ours and consensus estimates.

• We deem this to be slightly below as historically, 9MFY PATAMI accounts for 60-67% of full year PATAMI.

Deviations

• Higher Interest expense due to the increase in short term borrowings.

Dividends

• None.

Highlights

• 9MFY15 review… Revenues increased by 4.6% yoy to RM2,859.0m from RM2,733.8m, Retail and Property management services segments recorded a 4.2% and 6.8% increase yoy, respectively. Despite this, PBT declined by 32% (9MFY14: RM201.2m vs. 9MFY15: RM137.7m). This is attributed to higher operations cost, initial costs associated with new stores openings and high base effect in 9MFY14 (due to a one-off gain on disposal of Land and building of AEON Taman Universiti Shopping Centre of RM14.2m).

• Retail Segment: Registered a marginal increase in revenues of 0.3% to RM805.1m in 3Q15 yoy. A turnaround in retail segment operating profit contributed to a higher group PBT of RM45.2m (2Q15: RM22.3m), driven mainly by normalization from GST slump in 2QFY15.

• Property Management segment: The group’s property management services segment registered an increase of 6.8% revenue growth yoy (9MHFY14: RM378.9m vs. 9HFY15:RM404.8m), on the back of greater contributions from its existing and new shopping centres.

• Challenging outlook… We expect FY15 to remain challenging due to subdued consumer sentiment arising from the implementation of GST and a series of administered price hikes. The property segment will remain resilient; however we are less optimistic on the retail segment due to the overall consumer sector headwinds.

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 by 8% to take into account the current macro headwinds and the persistent low consumer sentiment. However we leave our FY16 forecasts unchanged as we expect a gradual revival in consumer sentiment in FY16.

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

• Maintain Target price of 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 - 27 Nov 2015