Period  4Q13/FY13

Actual vs. Expectations AEON reported 4Q13 net profit of RM 75.4m (+32.1% QoQ, - 1.8% YoY) which brought the FY13 NP to RM231.0m (+8.5% YoY).

 The full year earnings came in below expectations; at 90.2% of our forecast of RM256.0m and 92.2% of the consensus estimates of RM250.5m.

 The earnings miss was mainly due to lower-than-expected revenue growth from the property management segment, coupled with a contraction in 4Q13 net margin as a result of higher operating costs and initial costs for new store openings.

Dividends  No dividend was declared, although we are expecting a first and final dividend of 20.0 sen to be declared in April, as per historical norms.

Key Result Highlights YoY, 4Q13 NP was 11.8% lower despite a 6.9% increase in revenue. Revenue from the retailing segment (+6.9%) benefited from contributiona from new stores opened in the previous year in addition to the higher number of promotional days. At the same time, higher rental income achieved and contributions from new shopping centres also lifted revenue from the property management segment (+6.8%). However, higher operating costs and initial costs for new store openings resulted in lower EBIT margins of 11.5% (-1.6ppt YoY). Coupled with a higher effective tax rate, group net margins slid by 1.7ppt YoY to 8.1%.

 QoQ, revenue increased by 4.4% with growth registered from both the retailing segment (+4.3% QoQ) and the property management segment (+5.4% QoQ). Meanwhile, NP grew by 32.1% with a 64.9% increase in EBIT from the retailing segment offsetting a corresponding EBIT decline in the property management segment (-6.4%).

 For the full year, NP (+8.5%) rose in tandem with the 7.9% increase in revenue. Revenue for the retailing segment grew by 7.8% while the property management segment registered a revenue growth of 9.1%. Although the higher margin property management segment led to an overall improvement in Group EBIT margins (9.3% in FY13 compared to 9.0% in FY12), the impact to net margins was watered down by a higher effective tax rate.

Outlook  The Group's fundamentals remain intact, and following the new Kulaijaya, Johor store last year, AEON plans to open another 3 new AEON outlets and 2 MaxValu stores in smaller towns including Bukit Mertajam, Taiping and Klebang.

 AEON's management 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 Post results, we are trimming our FY14 core net profit forecasts to RM255.5m (-6.3%) to reflect a more conservative revenue growth and to account for higher operating costs. At the same time, we are introducing our FY15 net profit forecast of RM269.0m.

Rating Maintain MARKET PERFORM.

Valuation  Following the slight reduction in earnings forecast, our TP is also lowered to RM13.83 (Ex-Bonus and split TP of RM3.46) based on an unchanged FY14E PER of 19.0x.

Risks to our Call  Delay in expansion of new malls.

 Potential impact from implementation of GST and subsidy rationalization program.

 Higher than expected operating expenses resulting from new store openings.

Source: Kenanga