Period  2Q13/ 1H13

Actual vs. Expectations  AEON’s 2Q13 net profit (NP) of RM47.3m brought the 1H13 NP to RM98.4m. This is broadly in line with expectations, accounting for 40% and 39% of the street’s and our full year estimates of RM248.2m and RM255.8m respectively.

 The seemingly low ratio is not a major concern as the first half is seasonally weaker (Note that the 1H accounted for 34-45% of the full year results over the past 5 years).

Dividends  No dividend was declared this quarter, as expected.

Key Result Highlights  YoY, revenue rose by 8.0% to RM819.3m (RM758.7m in 2Q13) on the back of a better performance from both the retail (+8.0% YoY) and the property management services (also +8.0% YoY) segments. Growth in the retail business segment was driven by: (i) contributions from its new stores; and (ii) a higher number of discount days and loyalty members' sales days.

 Meanwhile, the better performance at AEON's property management services was due to the contributions from its new shopping centres. Coupled with the milder growth in operating expenses, the Group's net profit was up by 23.7% from RM38.2m in 2Q12 to RM47.3m in 2Q13.

 QoQ, revenue slid 5.7% from RM869.3m in 1Q13 to RM819.3m in 2Q13. This was mainly due to the seasonality effect where the Group benefited from higher revenue during the festive period in the last quarter. For the same reason, NP was also lower by a similar quantum (-7.5% QoQ) from RM51.1m in 1Q13.

 YTD, 1H13 revenue was up by 9.8%. A breakdown analysis reveals that the retail segment rose by 9.4%, while the property management segment increased by 12.4%. The stronger performance was due to the reasons mentioned earlier, in addition to the higher rental rates from tenants revamp which aided the Group's property management segment. The less than proportional rise in operating expenses also led to net margins improving by 0.9ppt to 5.8%. In effect, 1H13 NP rose by an impressive 29.7% at RM98.4m!

Outlook  The fundamentals of the Group remains intact and going forward, there will be more new outlet openings in FY13-14 (ie. 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 will be refurbishment of existing malls such as in Wangsa Maju and Bukit Raja to maintain/attract shoppers.

Change to Forecasts  We maintain our earnings estimates of RM254.1m in FY13 and RM270.4m in FY14 respectively.

Rating   Maintain MARKET PERFORM

Valuation  Although we maintained our earnings estimates, we are lowering our TP from RM16.40 to RM14.50 which implies a 1 notch cut from +3SD to +2SD over the 5-year average PER (19x vs. 23x FY14E PER previously).

 This is to reflect a more conservative view on AEON, as well as the broader consumer retail subsegment ahead of the potential GST implementation and subsidy rationalization.

Risks  Delay in expansion of new malls.

 The potential implementation of GST and subsidy rationalization program could dampen consumer spending.

Source: Kenanga