AEON CO.(M) - Still on Expansion Mode

AEON had meetings with 23 fund managers and investors at the OSK-DMG ASEAN HK Corporate Day (ACD) in Singapore on Monday. The investors were positive on the group’s outlook given its good progress in opening new stores as well as the growth in disposable income among the middle class. Going forward, the group is entering the northern region in a big way by opening 3 malls - in Sri Manjung, Sungai Petani and Bukit Mertajam. Maintain NEUTRAL, with a FV of RM8.53, based on a 15x FY12 EPS given the limited upside from the current share price.

Face-to-face with Singapore investors. AEON participated in our ACD event, for which the response was overwhelming. Executive Director Mr Poh Ying Loo elaborated on the group’s future plans and strategies. As its progress in expanding via new stores is on track, and given the defensive nature of its business as well as resilient consumer spending, we expect the group’s future earnings to be in line with our forecasts.

Marching to the north. The groupis in the midst of expanding its retail footprint to the states of Perak and Penang in the north. The new AEON Ipoh Station 18 shopping centre opened on 29 March 2012 while the Sri Manjung, Perak outlet is slated to open by the end of this year. Having recently acquired land in Kedah, Penang and Johor, the group plans to open two new malls in the northern region – one in Sungai Petani and one in Bukit Mertajam - plus another one in Kulai in Johor. In line with the group’s strategy to maintain its market dominance and penetrate untapped markets, AEON is looking at the possibility of venturing to East Malaysia, the east coast as well as secondary towns in Peninsular Malaysia where the population is growing. The group currently operates 29 stores nationwide, of which 25 are general merchandise stores (GMS) and 4 MaxValu stores.

Stiff competition. With more new malls sprouting up (Paradigm mall and Icon City) and growing competition from existing rivals such as Tesco (improving its stores’ tenant mix) and Mydin (building a mall on its own to make a start in property management), AEON has a tough fight in its hands. However, we believe that the group would be able to maintain a decent performance given its market positioning and vast experience in GMS as well as property management.

Maintain NEUTRAL. We like AEON’s unique business as a department store-cum-shopping mall operator, and its solid performance. The strong sales growth at its existing and new outlets, as well as higher property management fees from its upcoming malls, would lift the group’s future earnings. Maintain NEUTRAL, with a FV of RM8.53, based on 15x FY12 EPS.

Source: OSK