AEON’s FY13 results were within our estimates but below consensus numbers. The group announced a 1-for-1 bonus issue, followed by a 1-into-2 share split post bonus issue. Upgrade to BUY, with a new FV of MYR15.80 (from MYR15.90) given the recent retracement of its share price and solid fundamentals.

• Decent numbers. AEON’s FY13 revenue and net profit increased by 7.9% and 8.5% y-o-y respectively. The higher sales were due to: i)revenue from its retail segment growing 7.8% y-o-y due to a better overall performance from existing stores, higher contributions from new stores and a higher number of sales days held for its loyalty card members; and ii) healthy revenue growth from its property management segment, which grew by 9.1% y-o-y - largely attributed to better contributions from its new shopping centres and higher rental rates arising from the revamp of its tenants. Earnings rose 8.5% y-o-y, thanks to good segmental profit from the retail (+10.2% y-o-y) and property management (+12.2% y-o-y) divisions. Compared with 4Q12, 4Q13 sales grew 6.9% while earnings moderated by 11.8%, no thanks to higher operating costs and initial costs for new stores opening. Its EBIT margin improved by 30bps y-o-y, largely backed by improved EBIT margins from both the retail (5.6% vs 5.5% in FY12) and property management (37.0% vs 36.0% in FY12) divisions .
• Bonus issue and share split. The group proposed a 1-for-1 bonus issue followed by a 1-into-2 share split after completion of the bonus issue. AEON’s existing share base of 351m will expand to 1,404m post proposals, where its ex-all price will be MYR3.37, based on the last closing price. We are positive on the proposals as the bonus issue and share split will help to improve the liquidity and affordability of the stock. Post-deal, our ex-all FV will be adjusted to MYR3.95.
• Upgrade to BUY. Given the retracement in its share price and its outlet expansion being on track, we upgrade AEON to BUY from NEUTRAL with a revised FV of MYR15.80 (frpm MYR15.90), as we roll over our DCF valuation. AEON’s share price has retraced by 15.1% since we downgraded the stock to NEUTRAL back in Sept 2013. The stock is currently trading at an undemanding forward P/E of 18.5x, which is lower than its historical mean of 23x. Additionally, investor sentiment may remain buoyant in the short term on the proposals.

Bonus issue and share split 

1-for-1 bonus issue.AEON has proposed a 1-for-1 bonus issue of up to 351m bonus shares, which will enlarge its current share base to 702m from 351m. The bonus issue will be wholly-capitalised from the group’s retained earnings. We are positive on the deal as it will help to improve the stock’s trading liquidity and marketability in the long run.

1-into-2 share split.The group also announced a 1-into-2 share split upon the completion of the proposed bonus issue. Post share split, the issued and paid-up share capital of the company will be MYR702m, comprising 1,404m subdivided shares. This will make AEON’s shares more affordable and enable a wider group of investors to participate in the growth of the company on top of improving the stock’s 
liquidity.

Ex-all FV is MYR3.95.The proposals are expected to be completed by 1H14 and the theoretical ex-all price is MYR3.37, based on the stock’s last closing price of MYR13.48. Post-deal, our ex-all FV will be adjusted to MYR3.95.

Financial Exhibits

SWOT Analysis

Company Profile 
AEON operates a chain of superstores and shopping centres.

Recommendation Chart

Source: RHB