Aeon’s 4Q19 core PAT of RM58.9m (QoQ: +424.3%, YoY: +10.0%) brought FY19 to RM123.6m (+9.3% YoY). This was above ours and consensus expectations, accounting for 109.5% and 113.5% of forecasts, respectively. Despite earnings beating our forecasts, we keep our estimates given the risk from the Covid-19 outbreak impact footfalls to malls. We lower our PE multiple from 23x to 15x to reflect this. Our TP falls from RM2.00 to RM1.32. At current levels, we feel that this adequately reflects this risk, for now. Currently, Aeon trades at 14.8x FY20 earnings, which is more than -1SD below its five-year average PE of 27.5x. We downgrade our call from a Buy to a HOLD.

Above expectations. Aeon’s 4Q19 core PAT of RM58.9m (QoQ: +424.3%, YoY: +10.0%) brought FY19 to RM123.6m (+9.3% YoY). This was above ours and consensus expectations, accounting for 109.5% and 113.5% of forecasts, respectively.

Dividend. Proposed DPS of 4 sen (4Q18: 4 sen) (FY19: 4 sen, FY18: 4 sen).

QoQ. Core PAT more than quadrupled to RM58.9m. This was predominantly due to seasonality (reflected from retailing division posting RM59.1m profit vs RM2.1m in SPLY) as sales in the retailing division is fuelled by festive season and year-end sales.

YoY. Sales growth (+5.4%) in both retailing (+5.8%) and property management services (PMS) (+3.2%) was due to opening of Aeon Nilai in Jan-19 and newly renovated stores. Core PAT rose 10.0% in tandem with higher sales (after adjusting for MFRS 16 impact).

YTD. Despite the temporary closures and downsizings of certain stores, openings of Aeon Kuching (FY18) and Aeon Nilai (Jan-19) resulted in higher sales (+4.3%). After adjusting for MFRS 16 impact and adding back RM8.0m impairment from Aeon’s associate company Aeon Index in FY18, core PAT was higher by 9.3% from increased sales.

Outlook. After opening two shopping malls in FY16 and one in each of the following three years (FY17: Aeon Bandar Dato’ Onn, FY18: Aeon Kuching, FY19: Aeon Nilai), Aeon does not plan on opening any more in FY20. We are positive on the group’s slow-down in shopping mall openings amid the overhang in available commercial retail space. Despite this, we expect Covid-19 outbreak to have a significant impact on foot traffic in shopping malls. Note that during the H1N1 outbreak in 2Q09, Aeon’s revenue declined 15.1% YoY despite opening 3 supermarkets in FY08

Forecast. Despite the positive results showing, we keep our forecasts unchanged given the uncertainty surrounding the Covid-19 outbreak.

Downgrade to HOLD. While the results did surprise on the upside, we are concerned on the impact of the Covid-19 outbreak on foot traffic to shopping malls, which is particularly impactful to Aeon. As such, we lower our PE multiple from 23x to 15x (Aeon traded at 12x PE during the H1N1 outbreak) to reflect this risk, lowering our TP from RM2.00 to RM1.32. At current levels, we feel that this adequately reflects this risk, for now. Currently, Aeon trades at 14.8x FY20 earnings, which is more than -1SD below its five-year average PE of 27.5x. We downgrade our call from a Buy to a HOLD.

Source: Hong Leong Investment Bank Research - 2 Mar 2020