Decent Start, Expecting Sequential Improvement

Aeon’s 1QFY18 core net profit of RM29.0m (+2.9& yoy, -46% qoq) came in broadly within our (22%) and consensus (24%) estimates. The opening of new malls in 2017 and a boost from festive sales during the quarter lifted revenue both on a yoy and qoq basis. The weaker qoq performance however was mainly due to seasonality and a better product mix during 4Q17. As we are feeling positive on consumer sentiments moving forward, we raise 2019-2020E earnings and maintain our BUY call with a higher TP of RM2.65.

1QFY18 Core Net Profit Within Expectations

Aeon’s 1QFY18 revenue improved by 3.5% yoy, on the back of revenue growth of 3.4% in the retail division and 4.1% growth in the property management division. This was mainly due to contributions from the opening of Aeon Mall Bandar Dato’ Onn in Sept 2017 as well as contributions from shopping malls that were renovated and expanded in the 2017. EBIT margin also saw slight expansion on a yoy basis, leading to a 2.9% yoy increase in net profit to RM29m. This was broadly within our (22%) and consensus (24%) estimates.

Weaker Qoq Performance, Mainly Due to Seasonality

On a qoq basis, revenue increased by 4.4% due to festive season sales in 1Q18. However, core net profit was lower by 46% due to year end rebates during the end of 2017. Operating costs also crept up by 11% qoq, leading to lower margins. Note that fourth quarter EBIT margins are usually higher compared to the rest of the year: 8.0-10.6% for 2013-2017 vs 4.7-8.3% for 1Q during the same period, due to better product mix during the end of the year, we believe. (This note marks a transfer of coverage)

Maintain BUY With Higher TP of RM2.65

We maintain our 2018E forecasts but increase our 2019-2020 forecasts by 12-15% as we believe that rising consumer sentiment stemming from measures introduced by the current government will spur private consumption and benefit Aeon’s retailing revenue and improve rental income in the property management division. New mall openings in the upcoming years should provide steady income to Aeon. Maintain BUY with a higher TP of RM2.65 as we roll forward our valuations based on 26x 2019E EPS (5-year mean PE). Key risks: i) lower-than-expected domestic consumer spending; and ii) higher-than-expected operating expenses.

Source: Affin Hwang Research - 25 May 2018