AEON  participated  in  the  2nd Annual  Emerging  Markets  Conference organised  by  our  partner,  ESIB,  in  London.  Fund  managers  were generally drawn to AEON’s strong brand name, unique business model and solid earnings record. Maintain NEUTRAL, with a MYR15.90 FV.

• Getting  up  close  with  British  investors.  Our  partner,  Espirito  Santo Investment Bank (ESIB),  played  host  to  12 companies from six  regions during the 2-day event, at which AEON was the sole representative from Asean. Investors were generally positive on the company’s outlook given its strong branding and aggressive expansion.
• Expansion plan well in place.  Investors  were  interested in the group’s expansion  plans,  potential  synergy/cannibalisation  with  AEON  Big,  as well  as  the  competitive  landscape  in  Malaysia.  On  27  Nov  this  year, AEON opened its 27th mall in Kulaijaya in Johor, which has a net lettable area  (NLA)  of  around  457k  sq  ft.  The  four-storey  mall  comprises  two retail  floors  and  two  levels  for  car  parks.  In  FY14,  the  group  will  open three new malls  –  one each in  Bukit Mertajam  in  Penang  (~600k sq ft of NLA), Taiping (~400k sq ft) and Klebang, Ipoh (~500k sq ft).
• Uniquely  positioned to weather the storm. We see some procurement synergies  from  the  collaboration  with  AEON  Big  due  to  the  larger collective  orders.  Cannibalisation  should  be  negligible  as  AEON  Big operates  hypermarkets  that  target  the  lower-  to  mid-income  earners,while  AEON  is  a  department  store-cum-mall  operator  targeting  the middle-income group.  Competition between mall operators  is, however, heating up,  with:  i) construction players  venturing  into mall operation  (eg WCT’s  Paradigm  Mall),  ii)  department  stores  starting  to  operate  malls (eg  Parkson’s  Festival  City  Mall),  and  iii)  hypermarkets  like  Tesco revamping  their  tenant  mix.  That  said,  AEON  is  unique  as  most  of  its outlets are close to residential/suburban areas, while its  strong branding is a crowd-puller.
• Maintain NEUTRAL.  We revise our FY13 and FY14 earnings forecasts slightly  lower  -  by 3-4%  -  owing  to higher depreciation from  the  heavier capex  arising  from  new  stores.  Maintain  NEUTRAL,  with  a  new  FV  of MYR15.90  (from  MYR16.00).  The  stock  is  currently  trading  near  its historical P/E of 23x, which we deem fair.

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Company Profile
AEON operates a chain of superstores and shopping centres

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Source: RHB