Aeon’s 1Q19 results were within expectations, accounting for 28% and 26% of our and consensus’ full-year estimates. Strong retail segment performance drove the quarter’s robust earnings growth (+17% yoy), which was contrasted by another weak showing from the property management segment. Given the latter’s persisting weakness, we hold onto our conservative stance on the stock. Maintain HOLD with a revised TP of RM1.61.

Within Expectations

1Q19’s core net profit rose 16.7% yoy to RM32.7m, mainly due to: (i) revenue growth of 8.3% yoy, led by newly opened AEON Kuching (Apr18) and AEON Nilai (Jan19) malls alongside renovated outlets; (ii) strong margin improvement (+2.2ppts yoy, pre-MFRS 16 adjustment) for its retail segment; and (iii) absence of associate losses from Index Living Mall’s closure. However, the strong performance was offset by the property management segment’s declining profitability once more (pre-MFRS 16 EBIT margin -7.4ppts yoy), as well as a slight c.3% impact from the adoption of MFRS 16. All in, we deem 1Q19’s results to be within both our and street’s expectations.

Sequentially Weaker

On a qoq basis, core earnings declined 39.1% despite a 8.7% top-line growth (opening of AEON Nilai in Jan19) as seasonal year-end retailing rebates were recognised in 4Q18, while the property management segment’s margins fell -4.3ppts qoq (pre-MFRS 16). While there are no new mall openings for the rest of the year, the coming quarters would be boosted by the re-opening of Aeon’s Taman Maluri Shopping Centre following the completion of refurbishment works. Some RM500m capex is earmarked for 2019, whereby the group’s Daiso outlets were also slated for refurbishment.

Maintain HOLD

We revise 2019-21E EPS estimates by 1.6%/-2.1%/-2.7%, after revising our margin assumption for 2019 as well as impact from MFRS 16 adoption. After rolling forward our valuation horizon, we maintain our HOLD call on the stock, with a marginally higher TP of RM1.61 based on an unchanged 19x 2020E EPS. Upside/downside risks: i) higher/lowerthan-expected retail traffic; (ii) recovery/contraction in the property rental business; and iii) lower/higher-than-expected mall operating expenses.

Source: Affin Hwang Research - 31 May 2019