Aeon Co (M) Bhd (June 6, RM6.43)
Maintain buy at RM6.45 with target price of RM7.58: AEON announced to Bursa Malaysia last Friday that it had entered into a sale and purchase agreement with Asia Plywood Co Sdn Bhd for the acquisition of a 8.2ha piece of freehold land located in Bandar Sungai Petani, Kedah, for RM36 million. The purpose of the land is for the construction and subsequent operation of another shopping centre.
Given Aeon's strong net cash position of RM266.7 million (as at end-March 2011), we believe funding will not be an issue. We have pencilled in a capex assumption of RM280 million for 2011 (2010: RM135 million). The acquisition is in line with Aeon's strategy of growing its retail business via new shopping centres (which provide both retail and rental income). Managing director Nagahisa Oyama recently stated that Aeon planned to expand its outlets to 100 (from the current 27) by 2020. Aeon will be launching one new store this year, a shopping centre located in Rawang, Selangor, and another in Perak next year.
Overall, we are positive on the acquisition. Given the rising number of malls in the Klang Valley, Aeon has been focusing on expansion via new shopping centres in other states. The outskirt malls have been well received, as Aeon adjusts its product mix to cater for the relevant consumers. Typical breakeven period is between two and four years. We maintain our "buy" recommendation, with an unchanged target price of RM7.58, pegged to a price-earnings ratio target of 13 times on CY12 earnings per share. Our forecasts impute a slower FY11 core EPS growth of +2.2% year-on-year (y-o-y), due to a decline in retail sales from the temporary closure of the 1 Utama outlet for renovation. However, we project stronger FY12 EPS growth of +17.5% y-o-y, underpinned by: (i) sturdy same store sales growth of 6%; (ii) contributions from the new store in Rawang and; (iii) resumption of sales revenue from the 1 Utama outlet.
Key risks to our view are slower-than-expected consumer spending, as the government focuses on rollback of subsidies. — Affin IB Research, June 6
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