Aeon to report strong earnings next quarter
Nonetheless, we believe the group’s earnings will continue to improve over a longer term, supported by the commitment of opening one shopping mall each year.
KUALA LUMPUR: Aeon Co (Malaysia) Bhd (Aeon) is expected to report stronger earnings in the third quarter of 2018 (3Q18) driven by several factors including the increase in consumer spending during the tax holiday in June to August, analysts observed.
MIDF Amanah Investment Bank Bhd's research arm (MIDF Research) expected the group to post strong earnings next quarter mainly due to tax holiday spending, and low base effect of previous corresponding quarter performance.
However, on a longer term horizon, the research team remained wary on the group's financial performance in anticipation of: weak sales performance in the immediate quarter after the reimplementation of sales and services tax (SST) and continue share of losses from Index Living Mall Malaysia.
“Nonetheless, we believe the group's earnings will continue to improve over a longer term, supported by the commitment of opening one shopping mall each year,” the research team opined.
Meanwhile, on the group's 2Q18 results, it noted that Aeon's normalised earnings came in at RM17.8 million.
“The fall in earnings was mainly due to its share of operating losses from an associate company, Index Living Mall Malaysia Sdn Bhd, of RM11.4 million loss (compared to 2QFY17 of RM0.3 million loss),” MIDF Research said.
Nevertheless, it highlighted that the retailing segment posed an encouraging performance as 2QFY18 revenue improved by 5.9 per cent year-on-year (y-o-y) to RM893.2 million whilst operating profit (OP) grew more than double year-on-year (y-o-y) to RM17 million.
“This was mainly due to contribution from the new stores, which are AEON Bandar Dato' Onn, Johor Bahru and Aeon Kuching, which were launched in September 2017 and April 2018 respectively, better merchandise assortment, and operational efficiencies,” it added.
On the other hand, while its retail segment saw improved performances due to the opening of its new stores, its property management division was impacted by these stores' startup cost.
“The property management services' 2QFY18 revenue rose by 3.9 per cent y-o-y to RM170.9 million. This was mainly due to contribution from the rental and property management services provided by AEON Bandar
MIDF Research
Dato' Onn, Johor Bahru and Aeon Kuching, and contribution from shopping malls that were renovated and expanded last year, which are Aeon Taman Maluri and Aeon Queensbay.
“In addition, Aeon managed to sustain an occupancy rate of approximately 90 per cent despite the current tough market environment.
“However, OP declined by 10.3 per cent y-o-y to RM50.1 million due to the start-up cost for AEON Kuching Mall in April 2018, and increased in promotion expenses during festive seasons,” it explained.
Overall, MIDF Research maintained a ‘neutral' rating on the stock.