Sale of land in line with Aeon’s corporate strategy
KUCHING: Aeon Co (Malaysia) Bhd’s (Aeon) sales and purchase agreement (SPA) to dispose off a piece of land measuring 304,920 square feet (sqft) together with its Aeon Mahkota Cheras Shopping Centre, is in line with the company’s corporate strategy.
The research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) noted that due to the subdued performance of its business especially in the retailing segment, Aeon has been reorganising and consolidating its current portfolio and planned projects.
“It had aborted several planned projects in Sungai Petani, Senawang and Batu Pahat as well as terminating a tenancy agreement for a yet to be build mall.
“These, together with the disposal of Aeon Mahkota Cheras which is no longer strategic to its requirement are deemed necessary to sustain its business,” the research team added.
The proceeds of the sale (worth RM87.8 million) are to be utilised as working capital and to reduce borrowings.
“With a depleting cash balance coupled with higher borrowing, management intends to use the cash proceeds as working capital as well as to reduce its borrowing.
“As of the first quarter of the financial year 2017 ( 1QFY17), the net gearing increased 18 percentage points year-on-year (y-o-y) to 53 per cent while the quarterly cash interest paid has increased to RM9.5 million (65.4 per cent y-o-y increase).
“In addition, the proposed disposal is not expected to have any significant effect on net assets and gearing of Aeon,” MIDF Research said.
On the impact of the proposed disposal, the research team believed that there would not be any significant impact on Aeon’s earnings.
“The proposed disposal is not expected to have any material effect on our forecasted earnings as the contribution of the property to the group earnings is minimal,” it explained.
Aside from Aeon’s latest development, the research team of Hong Leong Investment Bank Bhd (HLIB Research) opined that Aeon would continue its long-term plan of opening store in Malaysia (albeit at a slower pace of one shopping mall a year instead of two) to capitalise on the growing urban, middle class population in Malaysia.
“The group is scheduled to open AEON Mall Kempas, Johor Bahru by the third quarter of this year and its first mall in Kuching, East Malaysia by the first quarter of 2018,” it added.
All in, HLIB Research said, it favoured Aeon for its potential to capitalise on the growing urban, middle class population in Malaysia that it believed would slowly begin switching its retail preferences from more traditional wet markets to all-in-one retailers like Aeon.
It also noted that the group is currently undergoing expansion in addition to a glut of retail space in the market in general, hence a margin pressure should be expected.
“We foresee margins to improve gradually in line with the recovery of consumer sentiment and the slowdown of aggressive expansion,” it said.
HLIB Research retained a ‘hold’ call on the stock, with a target price of RM2.16 per share based on 23-folds FY18 earnings per share (EPS) of 9.4 sen.
MIDF Research maintained a ‘neutral’ stance with an unchanged target price of RM2.21 per share, premised on price earnings ration 2018 (PER18) and EPS18 of 28-folds and 7.90 sen respectively.