Aeon’s 1Q18 core PATAMI of RM27.9m was within ours and consensus expectations. Going forward, rebounding consumer sentiment and zerorising of GST should see Aeon benefit from better consumer spending. We raise our FY18/19/20 PATAMI forecasts to account for better expected consumer spending, partially fuelled by zerorisation of GST. Maintain BUY call with a higher TP of RM2.60 after earnings adjustment and increasing our PE multiple from 23x to 25x.

In line. Aeon’s 1Q18 core PATAMI of RM27.9m was in line with ours and consensus expectations at 23.4% and 23.6%, respectively.

Dividend. None declared (1Q17: None)

QoQ: Core PATAMI dropped by 25.2% from RM37.4m to RM27.9m due to seasonality.

YoY: Core PATAMI was higher by 6.7%, in tandem with 3.5% higher revenue. Opening of a new shopping mall since Sep 2017 contributed to better top line in both retail and property management divisions. Additionally, higher profit margin in the retail division was due to better pricing strategy and merchandise assortment.

Expansion plans. Aeon have opened their first shopping mall in East Malaysia with the opening of Aeon Kuching in April including anchor tenants Uniqlo, MBO Cinema, H&M, Brands Outlet and more. Aeon plans to open their next shopping mall in 1Q19 in Nilai, Selangor.

Aeon Index Living. Aeon guided that they expect their loss making associate Aeon Index Living (49% stake) to narrow the losses in FY18. The group guided that Index Living Mall plan to reduce their lettable area in their Shah Alam and Kota Bharu stores. Aeon have slimmed the RM7.0m losses from associates in 4Q17 to RM2.3m in 1Q18.

Outlook: MIER Consumer sentiment Index continued to inch up in 1Q18, increasing to 91 from 82.6 in 4Q17. Additionally, the “zerorisation” of GST from 1 June 2018 should further fuel consumer sentiment, and hence boost Aeon’s top line.

Forecast. We raise our FY18/19/20 PATAMI forecasts by 4.3%/5.4%/6.5% to account to account for better expected consumer spending ahead.

Maintain BUY, TP: RM2.60. We expect rebounding consumer spending in 2018 to resuscitate Aeon’s sluggish retail business. We raise our TP from RM2.30 to RM2.60 based on revised FY19 EPS of 10.5 sen and a higher earnings multiple of 25x (previously 23x) on back of strong macro factors.

Source: Hong Leong Investment Bank Research - 25 May 2018