AEON yesterday announced on Bursa Malaysia that it has entered into a  sale and  purchase agreement with  AEON REIT Investment Corporate (J-REIT)  for  the  disposal  of  18.18%  share  of  its  land  in  Johor  Bahru together  with  18.18%  share  of  the  AEON  Taman  Universiti  Shopping Centre  erected  thereon.  The  deal  is  worth  ~MYR20m.  Maintain NEUTRAL and MYR16.00 FV.

- J-REIT buys  18.18% stake.  J-REIT is buying 18.18% share of  a  piece of  land  in  Johor  Bahru  owned  by  AEON  measuring  around  35k  sq  ft, together  with  18.18%  share  of  the  AEON  Taman  Universiti  Shopping Centre  erected thereon  at a cost of MYR20m.  J-REIT is an investment company  incorporated  in  Japan,  whose  principal  activities  are  to  own and  operate  real  estate  properties  and  property-related  assets.  The disposal price is derived from the valuation of the  property  amounting to MYR110m. The remaining 81.82% share of the property will be retained by AEON.

- AEON leasing  back the  disposed portion.  AEON will take a lease  on J-REIT’s  share  of  the  property  with  a  monthly  rent  of  MYR117.5k  to continue  using  the  whole  property  for a  period  of 10  years.  The  rental rate  will  be  adjusted  once  every  three  years.  The  company  will  be appointed  as  J-REIT’s  shopping  centre  business  manager  to  operate and maintain the property.

- Slight  adjustment  in  FY14  earnings.  Upon  completion  of  the  deal, AEON will have an additional one-off gain  of MYR15m in FY14.  We are tweaking  our  FY14  earnings  lower  by  0.4%,  after  imputing  the  higher rental expenses of MYR1.4m payable to J-REIT. The MYR15m gain is not reflected in our numbers since it is a non-recurring income.

- Maintain NEUTRAL.  We believe  the deal has no major impact on the company’s  fundamentals. We  still  like  the  stock  given  its  strong  brand name,  good  execution  track  record  and  resilient  business  model. Maintain NEUTRAL and MYR16.00 FV, based on a DCF valuation.

Source: RHB