Review

• Aeon Co. (M) Bhd FY16 results came in within ours but below consensus expectations at 99% and 80% respectively. Aeon’s core net profit contracted by 46.3% to RM70.0mn due to i) higher operation costs, ii) higher interest expenses and iii) costs incurred to set up new stores and malls. The increase in costs have offset the increase in revenue of 5.3% YoY to RM4.04bn generated from the new stores and malls. Note that the retail and property management segments recorded revenue increase of 4.6% and 9.8% respectively.

• 4QFY16 core net profit declined YoY by 39.7% to RM22.3mn. Even though revenue recorded an increase of 4.8% YoY to RM1.0bn, operating profit declined by 29.6% due to costs escalation as mentioned above. For retail and property management segments, quarterly revenue increased by 3.7% and 11.5% YoY respectively for 4Q16.

• On a QoQ basis, 4QFY16 core net profit improved significantly by more than 100% to RM22.3mn as the 2 new stores and 2 malls commenced operations. Note new stores opened were in Ipoh Falim and Sunway Velocity Mall whereas two new shopping malls were opened in Kota Bharu and Shah Alam.

• Management declared an ordinary dividend of 3sen/share for FY16 as compared to 4sen/share in FY15.

Impact

• No change to earnings forecast.

Outlook

• Management guided that FY17 will continue to be challenging due to weak consumer sentiment from rising standard of living. As such, management will implement appropriate i) pricing, ii) merchandise options iii) strategic marketing and iv) operational efficiency to produce a credible performance.

• We are cautious on Aeon’s financial performance on the back of i) continuous expenses for marketing which will put pressure on margins, ii) softer market condition and iii) intense competition from other shopping malls and stores.

Valuation

• No change in our earnings forecast with a maintain target price of RM2.23/share based on DCF valuation. Call remain as SELL.

Source: TA Research - 28 Feb 2017