AEON (FV RM8.53 - NEUTRAL) 1QFY12 Results Review: New Stores Weigh on Margins

AEON’s  1QFY12 earnings were below consensus but in line with our estimates. Revenue and core net profit grew by 8.2% and 5.3% respectively on  improved performance from the retail business and property management segments.  The opening of new stores, launch of a new shopping centre as well as higher rental rates lifted  the  quarter’s earnings.  EBIT margin, however, narrowed by 60bps to 6.9% due to higher operating expenses as a result of higher initial cost for new its stores. Maintain NEUTRAL, with a FV of RM8.53.

No surprises.  AEON’s 1QFY12 revenue and  core  net profit stood at RM779.5m and RM37.6m, growing by 8.2% and 5.3% y-o-y respectively on the back of  better  retail business and property management income. We deem the results in line as  the company’s  2H  earnings are  generally stronger than  those in  1H.  The decent results were buoyed by  a  stronger retail business segment, which recorded a 7.5% revenue growth y-o-y, as well as higher turnover from its property management services segment (+12.9%). Growth in the retail business was mainly driven by new store openings as well as  a  higher number of loyalty members’ sales days. In tandem with  the opening of another shopping centre, the higher rental rates and refurbishment of its existing stores, the  property management  segment  delivered better  numbers in the  quarter.  Vis-à-vis 4QFY11, revenue and  PBT were lower by 5.8% and 44.5% respectively due to the higher revenue and year-end trading rebates received in the previous quarter. The higher initial costs relating to  new stores openings this quarter  also  dragged down overall performance.

Lower margin. EBIT margin shrank to 6.9% from 7.5% y-o-y, down 60bps. The effects of higher operating expenses (+8.8%), including initial costs associated with the opening of new stores, was partially mitigated by the healthy topline.

Maintain NEUTRAL. Following the grand opening of the AEON Ipoh Station 18, another new outlet in Manjung, Perak - currently under construction - will open by the end of this year. We believe the group’s future earnings will be supported by strong sales growth at its existing and new outlets,  as well as higher property management fees from its upcoming shopping centres.  Maintain NEUTRAL, with  our  FV unchanged at RM8.53, based on 15x FY12 EPS.

Source: OSK