AEON CO (M) BHD

By MIDF Research Buy (Upgrade) Target price: RM2.04

AEON Co (M) Bhd’s fourth quarter financial year 2017 (Q4FY17) earnings increased by 65.5% year-on-year (y-o-y) to RM39.2mil which brings its full-year FY17 earnings to RM105mil.

After taking into account exceptional items of RM1.1mil, cumulative normalised earnings came in at RM106.1mil.

This is above MIDF Research’s and consensus’ expectations, accounting for 125.9% and 117.9% of full year FY17 earnings forecasts respectively.

The stronger than expected FY17 performance was due to the better than expected profit margin of the retailing segment and continued strong performance of property management services.

Full year FY17 retailing segment revenue increased marginally by 0.2% y-o-y to RM3.42bil.

Nevertheless, the operating profit (OP) grew by more than double to RM39.3mil from RM14.7mil recorded in FY16 premised on the improvement in OP margin.

This was mainly due to the contribution from the new stores/supermarket launched at Aeon Bandar Dato’ Onn, Johor Bahru, full year contribution from stores which was launched or renovated in FY16, like Aeon Tebrau City, as well as better pricing strategies as the newly gazetted Price Control and Anti-Profiteering Act 2017 focuses more on regulating prices of food and beverage products and not on hardlines and softlines products.

The property management services’ revenue and OP increased strongly by 10.5% y-o-y and 14.7% y-o-y, respectively.

This was mainly due to the contribution from the rental and property management services provided at Aeon Bandar Dato’ Onn, Johor Baru which started operation in September 2017 and full-year contribution from new shopping malls opened in FY16, such as Aeon Shah Alam and Aeon Kota Baru.

“Post earnings announcement, we are revising our FY18 and FY19 earnings estimates upward by 29.3% and 35.7% respectively.

“This is mainly to account for the faster-than-expected recovery and improved operating profit margins for the retailing segment,” said MIDF Research.

The research house’s target price is based on 2018 forward price-earnings ratio and earnings per share of 27 times and 7.6 sen, respectively.