News  Last Friday, AEON announced that it had entered into a 70:30 Joint Venture (“JV”) agreement with Index Living Mall Company Limited ("ILM") to jointly incorporate a private limited company in Malaysia, to be named "AEON INDEX LIVING SDN BHD".

 The tie-up with ILM, a Thailand-based furniture retailer, would enable AEON to expand its business into furniture retailing by providing complete selections of unique designed and high quality home and office furniture and various home fashion products accessories and related services.

 Under the agreement, the paid up share capital of the JV company shall be RM45.0m, where AEON’s investment portion amounts to RM31.5m (70%). The JV agreement is expected to be completed by June 2014 and will be financed by internally generated funds.

Comments  We are positive on the news as this is in line with the Group's corporate strategy of accelerating the expansion of its business, and would be AEON's maiden foray into the home-furnishings market in Malaysia.

 We also anticipate the move to be synergistic to both companies as it combines Index Living Mall's strength in manufacturing with AEON's extensive retail network in Malaysia. The first flagship Index Living Mall outlet is anticipated to be opened as soon as next year.

 The proposed investment cost of RM31.5m via internal fund is not a concern to us judging by its strong net cash position of RM277.3m as at 2Q13.

Outlook  The fundamentals of the Group remains attractive, 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 would also be a refurbishment existing malls, such as in Wangsa Maju and Bukit Raja.

Forecast  While we believe that the JV will enhance AEON's retail business going forward, we are maintaining our FY13EFY14E earnings estimates (RM255.8m-RM267.9m) for now as we do not expect any material earnings contribution at this early stage.

Rating   Maintain MARKET PERFORM

Valuation  Maintain TP of RM14.50, based on FY14E PER of 19.0x (+2SD from its historical 5-year mean).

Risks to Our Call Delay in expansion of new malls.

 Potential impact on its customers from implementation of GST and subsidy rationalization program.

Source: Kenanga