Analysts wary on Aeon’s weaker sales performance post-tax holiday

KUALA LUMPUR: Analysts are remaining wary on Aeon Co (M) Bhd’s (Aeon) weaker sales performance post-tax holiday, as they turn cautious on the sustainability of the group’s earnings recovery.

For the period ended September 30, 2018, Aeon’s profit after tax amounted to RM51.58 million, down 21.7 per cent from RM65.83 million in the corresponding period of the preceding year.

“Coming off from tax holiday, we remain wary however on the weaker sales performance in the immediate months after the reimplementation of the Sales and Service Tax (SST),” the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) said.

“To entice consumer to spend, we expect that the management will increase advertising and promotional (A&P) expenses in December 2018 in conjunction with school holidays and festivity period.”

“Over a longer term period, we like Aeon despite the continuing challenge facing departmental store sub-sector and proliferating shopping malls as Aeon’s possesses a unique business model as it positions itself as a neighbourhood shopping mall making it a preferred choice shopping mall in the suburban areas for low to middle income families.”

Additionally, the research arm expected the opening of Aeon Nilai in the first quarter of financial year 2019 (1QFY19) to continue to provide positive earning accretion going forward.

Meanwhile, Affin Hwang Investment Bank Bhd (Affin Hwang Capital) foresees a seasonally better fourth quarter of 2018 (4Q18) for Aeon mainly on margin improvements due to year-end trade rebates.

“To recap, 4Q16 and 4Q17 accounted for 41 per cent and 45 per cent of FY16 and FY17 earnings respectively,” the research firm said.

“However, as we understand Aeon has locked in pre-SST prices for the rest of the year, any outsized margin improvements might be limited.

“Failing to benefit meaningfully from the zerorated Goods and Services Tax (GST) period and the losses from its retail segment, we turn cautious on the sustainability of Aeon’s earnings recovery.”