Aeon’s 1Q19 core PAT of RM32.6m was in line, accounting for 26.0% of both ours and consensus earnings forecasts. In the property management services division, we expect occupancy and rental rates to be challenging for the foreseeable future due to the continued available glut of retail space in the market, which should place downward pressure on rental rates. Aeon will focus on refurbishing select malls including Aeon Taman Maluri as well as expand its ready-to-eat food segment which commands higher margins. In total, Aeon expects capex to total RM500m in FY19. We maintain our BUY call and TP of RM2.20 based on an unchanged 23x earnings multiple of FY20 EPS of 9.6 sen.

In line. Aeon’s 1Q19 core PAT of RM32.6m was in line, accounting for 26.0% of both ours and consensus earnings forecasts.

Dividend. None Declared (1Q18: None).

QoQ. Higher sales of 8.7% were due to Chinese New Year festivities and opening of Aeon Nilai in January 2019. Despite this, core PAT of RM32.6m (from RM53.5m) was lower by 39.0%. This was due to the recognition of year end rebates in 1Q19.

YoY. Revenue growth (+8.3%) in both retailing (+9.3%) and Property Management Services (+2.8%) divisions were due to the opening of Aeon Kuching (April 2018) and Aeon Nilai (January 2019). On a like for like comparison (removing RM2.4m losses from associate company Index Living in 1Q18 and adjusting for new accounting standard), 1Q19 PBT registered 10.2% growth. Bottom line was higher by 16.8% in tandem with better sales figures.

Outlook. In the property management services division, we expect occupancy and rental rates to be challenging for the foreseeable future due to the continued available glut of retail space in the market, which should place downward pressure on rental rates. Despite this, we expect Aeon’s retailing division to drive growth in FY19 with recent shopping mall openings. Furthermore, Aeon will focus on refurbishing select malls including Aeon Taman Maluri as well as expanding its ready-to-eat food segment which commands higher margins. In total, Aeon expects capex to total RM500m in FY19.

Forecast. Post annual report update, our FY19/20 PATAMI forecasts fall by 1.3%/1.2% on model up keeping.

Maintain BUY. We maintain our BUY call and TP of RM2.20 based on an unchanged 23x earnings multiple of FY20 EPS of 9.6 sen. We expect Aeon’s shopping mall refurbishments and pivot to ready to eat offerings to revive their sluggish retailing division.

Source: Hong Leong Investment Bank Research - 31 May 2019