Results

• Above expectations – FY17 PATAMI of RM102.1m (+22.6%) accounted for 109% and 113% of ours and consensus full year expectations, respectively. Deviations
• Better cost management, quicker-than-expected turnaround in the retailing segment, and stronger margins in the property management services division.

Dividend

• Recommended dividend of 4 sen (FY16: 4 sen).

Highlights

• QoQ: Core PATAMI more than tripled to RM37.4m due to seasonality, stronger margin in the Property Management division (3Q17: 33.3% vs 4Q17: 43.9%) and the retail division returning to profitability (3Q17: RM12.2m losses vs 4Q17: RM44.9m operating profit).
• YoY: Core PATAMI rose 20.2% to RM37.4m from RM31.1m as a result of the opening of a new Aeon Mall in Bandar Dato’ Onn in September 2017 as well as better contribution from newly renovated stores in the retail division.
• YTD: FY17 core PATAMI increased by 22.6% to RM102.1m from better retail division operating profit (better cost management) and increased earnings from the opening of an Aeon Mall in Bandar Dato’ Onn.
• Outlook: After a corporate restructuring exercise in 4Q17 that saw Aeon Index Living Sdn Bhd (a loss making entity) reclassified as an associate as opposed to a subsidiary (70% effective stake to 49% effective stake), we expect margins going forward to improve (note that share of associates in 4Q17 registered RM7.0m losses vs RM0.1m operating profit in 3Q17). Aeon have recently signed a MoU with Honestbee to grow the group’s online grocery presence. We are positive on this partnership but do not expect it to have a significant contribution to Aeon’s earnings in the short term. In 2Q18, Aeon expects to open a shopping mall in Kuching.

Risks

• Persistent weak consumer sentiment, slower-than-expected recovery in the retail division.

Forecasts

• We raise our FY18/19 forecasts by 1.0%/5.2% to account for a reduction of the groups effective holding of a loss making entity (as mentioned above), better cost management, and improving consumer sentiment.

Rating

BUY (↑ )

• We expect Aeon to benefit from the better consumer spending in 2018 in line with our macro view of tapering GST impact coupled with stronger spending power boosted by Budget 2018 freebies. Aeon’s reduced holding of a loss making entity and better cost management should see margins improve going forward.

Valuation

• After earnings adjustment and rolling over our valuation to FY19, we upgrade our call from a hold to a BUY with a higher TP of RM1.82 from RM1.66. Our earnings multiple of 20x remains unchanged.

Source: Hong Leong Investment Bank Research - 01 Mar 2018