News    AEON has entered into a Sale and Purchase Agreement with Johor Land Berhad for the acquisition of a freehold land with "Building-Commercial Shopping Centre" land use status for RM70.2m.

The freehold land measures approx. 20.93 acres or 911,710.8 sq ft and is situated in Mukim Tebrau, Daerah Johor Bahru within a green area reserve (Kawasan Lapang) which forms part of the mixed development known as Bandar Dato' Onn. 

The purpose of the land acquisition is to construct and operate a mall with car parks and a departmental storecum-supermarket.

The acquisition is expected to be completed within  20 months and will be fully satisfied by cash and funded by internally generated funds.

Comments    We understand the key rationale of the acquisition is to accelerate the expansion of its retail business through opening of new shopping centres and outlets. The acquisition would also provide AEON with the opportunity to expand its presence in the growing area of Kempas, Johor.  

The land comes at a rate of RM70.60 psf. We believe the purchase price is fair, as it comes at the lower end of the RM68 psf – RM210 psf range for commercial land in the area. 

While we believe the upcoming new mall on the newly acquired land will enhance its retail business going forward, we have not imputed the potential earnings' impact into our financial model at this early stage. 

The proposed land acquisition cost of RM70.2m via internal fund is not a concern judging by the strong net cash position of RM398.4m as at 1Q13. 

Outlook   We remain positive on the company’s future prospects as there will be more new outlet openings in FY13-14 (i.e. a 457,000sq ft shopping mall in Kulai in Dec-13, and two more in Bukit Mertajam and Sungai Petani in FY14 respectively).

Additionally, there would also be refurbishment of  the existing malls such as in Wangsa Maju and Bukit Raja.

Forecast   While we have not imputed the potential earnings impact into our financial model at this early stage, we have fine-tuned our FY13-14E net profit to RM255.8mRM267.9m (+0.7% and -0.9%) due to house-keeping reason.

Rating   Maintain MARKET PERFORM

Valuation    Maintain TP of RM16.40, based on FY14E PER of 23.0x (+3SD from its historical 5-year mean).

Risks   Delay in expansion of new malls.

The potential implementation of GST and subsidy rationalisation program.

Source: Kenanga