Period  3Q13/ 9M13

Actual vs. Expectations The 9M13 net profit (NP) of RM155.5m is in line with expectations, accounting for 61.2% of the consensus full year forecast and 60.7% of ours.

 Note that AEON's 9M results typically contribute 58% to 73% of full-year earnings.

Dividends  No dividend was declared this quarter, as expected.

Key Result Highlights YoY, AEON's 3Q13 NP rose to RM57.1m (+11.2%) amid a 5.7% increase in revenue (the retail segment grew 5.8% to RM776.7m while the property management services segment grew 5.4% to RM116.5). The improved revenue from the retail segment was due to higher demand and overall higher number of loyalty card member's sales days. At the same time, growth within the property management services segment was attributed to higher rental income achieved and contributions from its new shopping centre.

 QoQ, revenue grew by 9.0% due to the festive seasons during the quarter. Nevertheless, 3Q13 NP increased further by 20.8% and this was due to a lower proportion of operating costs which led to a 0.6ppt expansion in net margins (from 5.8% in 2Q13 to 6.4% in 3Q13).

 YTD, 9M13 revenue grew by 8.3% to RM2581.8m while NP was 22.2% higher at RM155.5m. Revenue for the retailing segment grew by 8.1% while the property management services segment also increased by 10.1%. The better top-line and bottom-line performances were due to the above-mentioned reasons which resulted in a 0.7ppt improvement in net margins from 5.3% in 9M12 to 6.0%.

Outlook  Going forward, there will be more new outlet openings in FY13-14 in Kulai Jaya, Bukit Mertajam, Taiping and Klebang.

 AEON’s management has also expressed their intention to expand its retail outlets into Sabah and Sarawak to further strengthen its presence in the retail segment in East Malaysia.

Change to Forecasts  We maintain our earnings estimates of RM256.0m in FY13 and RM272.8m in FY14.

Rating  Downgrade to UNDERPERFORM.

Valuation  We maintain our TP of RM14.76, based on an unchanged FY14E PER of 19.0x (+2SD from its historical 5-year mean). However, given the slight downside to the target price, we are downgrading AEON to an UNDERPERFORM. Besides, its uninspiring dividend yields (of <2%) also reinforce our downgrade.

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