Aeon’s 2Q19 core PAT of RM20.3m (QoQ: -39.8%, YoY: +13.9%) brought 1H19 to RM54.0m (+0.5%). This accounted for 43.7% and 42.1% of ours and consensus expectations. We deem this in line with ours and consensus expectations as 1H typically makes up approximately 45% of full year forecasts. Our forecast remains unchanged. We maintain our BUY call and TP of RM2.20 based on an unchanged 23x earnings multiple of FY20 EPS of 9.5 sen. We expect Aeon’s shopping mall refurbishments and pivot to ready-to-eat offerings to revive their retailing division.

In line. Aeon’s 2Q19 core PAT of RM20.3m (QoQ: -39.8%, YoY: +13.9%) brought 1H19 to RM54.0m (+0.5%). This accounted for 43.7% and 42.1% of ours and consensus expectations, respectively. We deem this in line with ours and consensus expectations as 1H typically makes up approximately 45% of full year forecasts.

Dividend. None declared (1H18: None). Aeon typically only declares dividend once a year, usually in April of the following year.

QoQ. Revenue declined 8.9% to RM1,099.5m due to seasonality, as 1Q is typically a seasonally stronger quarter due to festive season sales associated with Chinese New Year. Core PAT declined 39.8% in tandem with lower sales as well as higher effective tax rate.

YoY. Revenue growth (+3.3%) from both retailing (+3.5%) and property management services (+2.4%) was due to contributions from newly renovated stores and the opening of Aeon Nilai (January 2019). Core PAT was higher by 13.9% at RM20.3m from increased sales and better margins in the property management services division. Note that 2Q18 core PAT figure was arrived at after adding back RM8.0m in impairment from associate company.

YTD. Opening of Aeon Kuching (April 2018) and Aeon Nilai (January 2019) resulted in better retailing (+6.5%) and property management services (+2.6%). After adjusting for MFRS implementation and impairment in associate in 1H18 (as mentioned above), core PAT was flat (+0.5%) as sales growth was mitigated by additional store renovation cost in 1H19.

Outlook. We expect Aeon’s retailing division to drive growth in FY19 with 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. Furthermore, we are encouraged by improving margins in the property management services division (Figure 2) which we expect to be maintained with mall refurbishments leading to higher foot traffic.

Forecast. Unchanged.

Maintain BUY. We maintain our BUY call and TP of RM2.20 based on an unchanged 23x earnings multiple of FY20 EPS of 9.5 sen. We expect Aeon’s shopping mall refurbishments and pivot to ready-to-eat offerings to revive their retailing division.

Source: Hong Leong Investment Bank Research - 27 Aug 2019