AEON’s 1HFY13  results  were  within  consensus  expectation  but  beat ours.  Turnover  and  net  profit  surged  by  9.8%  and  29.6%  y-o-y respectively,  thanks  to  the  solid  performance  from  its  retail  and property  management  segments.  Upgrade  to  BUY,  with  a  new  FV  of MYR16.20 (from MYR15.20).  
 
- Good results. Revenue recorded a healthy growth of 9.8% y-o-y, largely due  to  stronger  sales  from  both  its  retail  and  property  management segments. Retail sales beefed up by 9.4% y-o-y on the back of additional contributions  from new  stores  and  overall  higher  number  of  loyalty card members’ days. Property management’s turnover increased by 12.4% y-o-y,  mainly  driven  by  contribution  from  new  shopping  centres  (Ipoh Station  18  and  Sri  Manjung  shopping  centres  opened  in  FY12)  and higher rental rates from tenants revamp. Earnings expanded by 29.6% y-o-y,  supported  by  better  EBIT  from  retail  (+32.2%)  and  property management  (+24.8%).  Compared to 2Q12, 2Q13’s revenue and net profit  went  up  by  8%  and  23.8%  respectively  due  to  encouraging performance from both divisions.

- Fatter  margins.  EBIT  margin  increased  by  1.5ppt  to  8.2%  y-o-y, propped  up  by  stronger  EBIT  margins  from  retail  (3.8%  vs  3.1%  y-o-y) and property management (39.2% vs 35.3% y-o-y)

- More  new  malls  in  the  pipeline.  We  expect  AEON  to  open  7-8  new malls in FY13-15. It will open one in Kulai, Johor with a net lettable area (NLA)  of  around 457k  sq  ft  by  end-2013.  Three  confirmed new  malls in the  pipeline  for  FY14  are  to  be  located  at  Bukit  Mertajam  (~600k  sq  ft NLA),  Klebang  (-500k  sq  ft),  and  Taiping  (~400k).  In  FY15,  a  new  mall with a NLA of ~600k sq ft will be opened in Shah Alam. AEON may also venture into East Malaysia, eg Kuching, Sarawak, with malls openings.

- Upgrade to BUY. Imputing the better margins bumps up our FY13F and FY14F earnings forecasts by ~7-10%, lifting our FV to MYR16.20 (from MYR15.20),  based  on  DCF  valuation.  Upgrade  to  BUY  as  the  stock  is trading at a cheaper P/E of 20x compared to its historical P/E of 23x after the  recent  share  price  retracement.  We continue to like AEON’s solid fundamentals, strong branding and aggressive expansion. 

Source: RHB