Results

• Below expectations – Aeon’s FY15 PATAMI of RM133m (-33% yoy) came in below expectations, accounting for 75% of ours and consensus estimates.

Deviations

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

Dividends

• Declared a first and final dividend of 4 sen/share representing a pay-out of 42.1% and yield of 1.55%.

Highlights

• FY15 review… Revenues grew 3.5% yoy to RM3.83bn from RM3.71bn, Retail and Property management services segments recorded a 3.0% and 7.0% increase yoy, respectively. Despite this, PBT declined by 30% (FY15: RM210.8m vs. FY14: RM301.3m). This is attributed to higher operations cost, initial costs associated with new stores openings and a one-off gain on disposal of Land and building of AEON Taman Universiti Shopping Centre of RM14.2m in FY14.

• Retail Segment: Registered a marginal increase in revenues of 3.0% in FY15 (FY15:RM3, 288.8 vs. FY14:RM3, 193.2). Despite this, operating profits declined 62% yoy due higher marketing and promotional expenses and pricing promotions on the back of low consumer sentiment and a highly competitive market.

• Property Management segment: The group’s property management services segment registered an increase of 7.0% revenue growth yoy (FY14: RM512.3m vs. FY15:RM545.8m), on the back of greater contributions from its existing and new shopping centres.

• Challenging outlook… We expect FY16 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 remain cautious on the retail segment due to the overall consumer sector headwinds. However we do expect a gradual revival in consumer sentiment in FY16.

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 FY16-17 by circa 23% to take into account the current depressed consumer sentiment and pricing competitiveness amongst the retailers.

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

Reduce target price to RM2.58 from RM2.99 post earnings revision and rolling over, pegged to unchanged 20x P/E based on FY17 EPS of 12.9 sen or 1SD above 3-year historical average P/E (see figure 4). Maintain HOLD.

Source: Hong Leong Investment Bank Research - 26 Feb 2016