FY16 net profit of RM75.0m (-43.1% YoY) was within our expectation, accounting for 96% of our forecast but below consensus expectation at 85%. FY16 Total and Final DPS of 3.0 sen was declared as expected. Outlook is challenging with the subdued consumer sentiment creating an unconducive scenario to raise selling prices. Maintain UNDERPERFORM with unchanged Target Price of RM2.06.

Within expectations. FY16 net profit of RM75.0m (-43.1% YoY) was within our expectation by accounting for 96% of our forecast but below consensus expectation at 85%. Total and Final DPS FY16 of 3.0sen was declared (vs FY15: 4.0sen), within our expectation. (Representing a dividend pay-out ratio of 56%).

YoY, FY16 revenue grew 5.3% to RM4.0b thanks to growth across operating divisions, retailing (+4.6%) and property management (+9.8%) on the back of new shopping malls and stores openings. However, FY16 operating profit dipped by 20.2% to RM181.2m, mainly dragged down by lacklustre performance in retailing in which decreased by 92.6% to RM3.3m on high operating costs while operating profit contribution from property management division was flattish (+0.5%) to RM209.1m. Coupled with higher interest expense (+100.3%) and further exacerbated by a high effective tax rate of 49.0% as compared to 37.5% in FY15, FY16 net profit dipped 43.1% to RM75.0m.

QoQ, 4Q16 revenue surged by 6.0% to RM1,022.9m with retailing and property management services division recording surge in sales by 6.0% and 5.6%, respectively, mainly contributed by its new stores and shopping malls. 4Q16 operating profit surged 203.2% to RM67.8m with positive contribution of RM14.9m from its retailing division as compared to EBIT loss of RM14.1m in 3Q16. As a result, 4Q16 net profit surged 354.6% to RM24.6m.

More challenges ahead. Looking forward, we foresee the near-term outlook for its retail division to be challenging considering the persistently weak consumer sentiment and subdued consumer spending, rendering AEON unable to hike selling prices to protect profit margins. Its property management division is expected to continue its solid run with more new store openings. However, as retail contributes the lion’s share of revenue (>85%), the sluggish performance in the division is expected to constraint earnings growth. Thus, we are maintaining our cautious stance on AEON.

Maintain earnings forecasts. Post-result, we maintain our earnings assumption of RM92.1m for FY17E. Meanwhile, a FY18E earnings assumption of RM100.5m, implying earnings growth of 5.7% is introduced assuming: (i) at least two new mall or refurbished mall for 2018, and (ii) average income per mall increasing by 1.2%.

Maintain UNDERPERFORM with unchanged Target Price of RM2.06. We maintained our TP of RM2.06, based on unchanged 1.54x FY17E PBV, which is close to -2 SD over its 5-year historical mean PBV to reflect the negative outlook.

Source: Kenanga Research - 28 Feb 2017