INVESTMENT HIGHLIGHTS

• 1QFY18 earnings rose by +6.6yoy to RM27.9m, in-line with our expectation

• Retailing segment continue to recover

• Property management performance remain stable

• Better prospect has been factored into current valuation

• Downgrade to NEUTRAL with a revised TP of RM2.11

Earnings within expectations. Aeon Co. (M) Bhd (Aeon Co)’s 1QFY18 earnings increased by +6.6%yoy to RM27.9m. This is in line with ours and consensus expectations, accounting for 26.3% and 23.9% of full year FY18 earnings forecasts respectively.

Retailing segment continue to recover. The retailing segment posed an encouraging performance as 1QFY18 revenue improved by +3.4%yoy to RM943.9m. Operating profit (OP) grew even larger pace at +37.6%yoy to RM6.8m premised on OP margin improvement. This was mainly due to the: (i) contribution from the new stores/supermarket launched at i.e. AEON Bandar Dato’ Onn, Johor Bahru in September 2017 and; (ii) better pricing strategies and change in product mixture.

Property management remained the backbone. The property management services’ continue to provide steady income to the group with 1QFY18 revenue and OP increased by +4.2%yoy and +6.0%yoy respectively. This was mainly due to the: (i) contribution from the rental and property management services provided at AEON Bandar Dato’ Onn, Johor Bahru and; (ii) contribution from shopping malls that were renovated and expanded last year. In addition, Aeon Co managed to sustain an occupancy rate of approximately 90.0% despite the current tough market environment.

Impact to earnings. Post earnings announcement, we made no changes to our forecast as the result is in line with our expectation.

Target price. We are rolling forward our valuation base year to FY19 and derive a new target price of RM2.11 (previously RM2.04). This is based on pegging FY19EPES of 7.8sen against forward PER of 27.0x. Our target PER is premised on the average PER of the company for the past two years.

Downgrade to NEUTRAL. We expect Aeon Co’s earnings to continue to improve moving forward, supported by the commitment of opening one shopping mall each year for the next three years. Since our BUY recommendation in February 2018, the share price has ran-up by +56.5% to RM2.30. Thus, we view that the positivity has been fully factored into the current valuation. Based on this, we are downgrading our recommendation to NEUTRAL (previously BUY).

Source: MIDF Research - 25 May 2018