INVESTMENT HIGHLIGHTS

• 1QFY19 normalised earnings rose by +16.8%yoy to RM32.6m, supported by the retail segment

• The management has remained cautious on plan opening of new shopping mall beyond FY19.

• The focus for now will be on refurbishing and maintaining existing stores to stay competitive

• Upgrade to NEUTRAL with a revised TP of RM1.60

Strong 1QFY19 earnings. Aeon Co. (M) Bhd (Aeon Co)’s 1QFY19 earnings came in at RM32.6m, an increase of +16.8%yoy. This exceed our but met consensus expectation at 34.4% and 26.2% of full year FY19 forecast earnings. Previously, we anticipated lower earnings due to the normalisation of same-store-sales growth (SSSG) post taxholiday period. However, the retailing segment recorded a strong operating profit during the quarter. This is partially mitigated by the lease interest charged as a result of the implementation of MFRS16.

Retail segment boosted by new stores. The retailing segment’s 1QFY19 operating profit had quadrupled to RM33.6m in comparison to the corresponding quarter last year. This was mainly attributable to: (i) the newly renovated stores and; (ii) better profit margin. Whilst opening of new stores at Aeon Kuching, Sarawak (April 2018) and Aeon Nilai, Negeri Sembilan (January 2019) has contributed to a higher revenue, we believe that these stores have yet to breakeven, being in operation for less than a year.

Property management significantly impacted by MFRS16. The property management services’ 1QFY18 revenue rose marginally by +2.8%yoy to RM175.2m. However, the segment’s operating profit rose higher by +16.9%yoy to RM67.0m as operating lease of RM53.5m was no longer charged under the segment. Instead, these off-balance sheet leases are now recognised as right-of-use assets following the adoption of MFRS 16. These assets are then amortised accordingly. In the 1QFY19, right-of-use assets amortisation for the segment amounted to RM32.6m, lower than amount charged to the segment pre-MFRS16.

Impact to earnings. Post earnings announcement, we are revising our FY19 and FY20 forecast upwards by RM20.4m and RM12.1m respectively as we input a higher assumption of SSSG going forward.

Source: MIDF Research - 31 May 2019