FY18 CNP of RM124.5m (+17%) came in within our forecast at 105%, but above consensus expectation at 119%, of full-year estimates. The group opened a new AEON mall in Kuching, Sarawak in 2Q18 and another one in Negeri Sembilan in Jan 2019. The group has allocated RM400m capex for FY19 (FY18: RM400m) for the construction of the new mall and renovation of existing malls. No changes to our FY19E CNP. Reiterate OP with unchanged TP of RM2.00.

FY18 within our expectation. FY18 CNP of RM124.5m (+17%) came in within our forecast at 105%, but above consensus expectation at 119%, of full year-estimates. The FY18 CNP excludes a one-off recognition for divestment of an associates, Index Living Mall Malaysia Sdn Bhd (ILMM), with impairment loss of RM8.0m and share of 1H18 operating loss of RM11.4m. ILMM is a joint-venture company (51%/49%) between AEON and Index Living Mall Company Limited (ILM). A final DPS of 4.0 sen (FY17:4.0 sen) was declared for FY18, as expected.

YoY, FY18 CNP rose 17% mainly due to higher sales (+6%) with stronger performance in Retailing business division (+10%) and Property Management division (+4%). The positive growth was attributed to higher contribution from new AEON Mall Kuching (opened in 2Q18) and supported by the stronger contribution from new mall opened last year (AEON Kempas, Johor) as well as shopping malls that were renovated and expanded. Additionally, the effective tax rate was also lower at 43.8% (FY17: 45.8%)

QoQ, 4Q18 CNP surged 287%, despite the slower sales growth (+4%), mainly from expanded EBIT margin by 5.5ppt to 8.7% from 3.2% in 3Q18 due to lower base in 3Q as AEON absorbed the SST pricing impact, locking the zero-rated pricing only for September 2018 (SST tax percentage brackets are varied based on products, effective 1st

September 2018). Note that, 3Q is historically the weakest quarter for the group, without any festivities to boost sales, as compared to 4Q which are boosted by year-end promotional activities. Furthermore, the effective tax rate was also lower at 37.1% (3Q18: 40.8%)

Outlook. Management highlighted that for retailing space, they would continue to refurbish selected stores and employ appropriate marketing and pricing strategies, merchandise assortment reformation, maintaining quality customer service and further expand its ecommerce presence. For property management services, they expect the occupancy rate and rental rates to remain challenging. AEON will continue to leverage on its competitive strengths to draw customer traffic to its malls so as to maintain its position as a popular shopping destination. The group has opened new AEON mall in Kuching, Sarawak in 2Q18 and another one in Negeri Sembilan in January 2019. The group has allocated RM400m capex for FY18/FY19 (FY17: RM500m) for the construction of the new mall and renovation of existing malls.

Maintain OUTPERFORM with an unchanged TP of RM2.00 based on 21x FY19E EPS, at -1.0SD of its 5-year historical mean PER.We like AEON for its: (i) dual income streams, which are less vulnerable to price changes during implementation of the new SST, and (ii) on-going operations restructuring, improving margin for retailing, and sustained property income. Risks to our call include: (i) lower-than-expected sales, and (ii) higherthan-expected operating expenses.

Source: Kenanga Research - 28 Feb 2019