Aeon’s 2017 core net profit increased 21% yoy to RM123m, which was above our and consensus expectations (123% and 136% of full-year estimates). There was a restatement of the financial statements due to change of accounting method for investment in associates, but we suspect the impact is minimal (<1%). We believe that improving consumer sentiment and a favourable 2018 budget, in addition to management’s continual cost optimisation efforts, should lead to a recovery in the retailing segment. Maintain BUY with unchanged TP of RM2.30

2017 Core Earnings Beat Expectation

2017 revenue increased marginally by 1.7% yoy to RM4.1bn. Retailing revenue was flat at RM3.42bn as opening of new malls negated the weak consumer spending but its EBIT increased from RM14.7m in 2016 to RM39.3m in 2017, as a result of effective pricing strategies and merchandise assortment recorded. Property management revenue and EBIT increased by 10% yoy and 15% yoy respectively due to the opening of Aeon Mall Bandar Dato’ Onn in Sept 2017; with EBIT margin improved slightly to 36% vs. 34.8% in 2016. 2017 core earnings increased by 21% to RM123m, coming in above our and street expectations. The deviation was due to stronger-than-expected core earnings growth in 4Q17 at 40% yoy excluding exceptional items due to higher opex control and better product mix in retailing segment. 4 sen dividend was proposed, a positive surprise compared to our forecast of 3 sen.

4Q17 Highlights

In 4Q17, an RM18.5m gain on disposal was recognized for Aeon Mahkota Cheras and the proposal was completed on 21 Dec 2017 with a sale price of RM87.8m. Also, impairment loss on investment in a subsidiary of RM19.6m was recognized as Aeon reduced stakes in Aeon Index Living (from 70% to 49%).

Maintain BUY on Valuations With Unchanged TP of RM2.30

We maintain our forecast for 2018-19E and we continue to believe that stronger growth in private consumption and a favorable 2018 budget should benefit Aeon’s retailing revenue in 2018. Aeon’s strategy to open 1 mall a year should also provide stable recurring income. Maintain BUY with a TP of RM2.30 based on a 2018E PE of 25x (5-year mean PE). Key risks: i) lower-than-expected domestic consumer spending; and ii) higher-thanexpected operating expenses.

Source: Affin Hwang Research - 1 Mar 2018