KEY INVESTMENT HIGHLIGHTS

• 3QFY19 earnings was lowered by -47.1%yoy to RM7.3m

• Cumulatively 9MFY19 earnings of RM59.4m came in within ours and consensus expectations

• Retail segment was impacted by the refurbishment and maintenance works at existing stores

• We expect a seasonally stronger 4QFY19 earnings, driven by the school holiday and festivity spending

• Maintain NEUTRAL with an unchanged TP of RM1.60

Earnings within expectations. Aeon Co. (M) Bhd (Aeon Co)’s 3QFY19 earnings dropped by -47.1%yoy to RM7.3m. This brings its cumulative 9MFY19 earnings to RM59.4m, which is within ours and consensus expectations at 51.5% and 50.9% of full year FY19 forecast earnings respectively. Historically, the 4Q is a seasonally strongest quarter due to the school holiday and festivity season.

Retail segment partially impacted by maintenance work. The 9MFY19 operating profit for the retail segment grew by more than triple to RM55.5m from the last corresponding period. After excluding the impact of MFRS 16, the retailing segment’s 9MFY19 operating profit amounted to RM44.0m. The strong retail performance was mainly attributable to: (i) the newly renovated stores; (ii) newly opened speciality stores; (iii) new stores at Aeon Kuching, Sarawak (April 2018) and Aeon Nilai, Negeri Sembilan (January 2019) and; (iv) better profit margin especially in the 1Q. Nonetheless, the higher growth was impacted by the refurbishment and maintenance works at existing stores during the period.

Lower contribution from property management. Meanwhile, the property management segment registered 9MFY19 operating profit of RM207.5m (+33.3%yoy). However, post adjustment of MFRS 16, operating profit for the period recorded at only RM142.6m (-8.4%yoy). We believe the decline was mainly due to the challenging rental rates and higher operating expenses such as utilities.

Impact to earnings. We are maintaining FY19 and FY20 forecast at this juncture as our estimates are within expectation.

Target price. Our target price remains unchanged at RM1.60 which is based on pegging FY20EPS of 8.0sen against a forward PER of 20.0x. This is premised on one standard deviation below the five years historical average PER. We attribute the discount to the saturated retail landscape in the country.

Source: MIDF Research - 29 Nov 2019