Aeon Malaysia diversifies into smaller stores on competition

KUALA LUMPUR: Aeon Co (M) Bhd, the Malaysian unit of Japan’s largest retailer, is diversifying into furniture and electronics stores as competition from new shopping malls intensifies. The stock rose to a one-year high yesterday.

Aeon Malaysia doesn’t have a mandate yet to expand regionally and is focused on enlarging its domestic operations, executive director Poh Ying Loo said in an interview here on Monday. The company operates shopping centres, department stores and pharmacies.

“Competition, changing consumer market behaviours all warrant this kind of evolving change,” Poh said. “Retail industry is actually very competitive. There has been an ample increase in retail space in the last one year and it’s going to increase further in the next two or three years.”

Retailers are seeking new ways to lure customers as prices of goods increase due to higher costs of fuel, power and sugar which will slow private consumption. Aeon Malaysia plans to spend RM1.4 billion this year and the next to open more stores and refurbish existing ones as it braces for a goods and services tax that it says may hurt sales for three months after the implementation in April 2015.

Private sector consumption expanded 7.1% in the first quarter from a year ago, after climbing 7.4% in the last three months of 2013, according to central bank data. Locally, Aeon Malaysia faces competition from Tesco Plc, the UK’s largest grocer.

“Aeon Malaysia has been one of our core holdings for the past 15 years,” said Gerald Ambrose, managing director of Aberdeen Asset Management Sdn Bhd, which owns shares in the stock. “The company does seem to have the ability to grow its business.”

Shares in Aeon Malaysia have risen 1.7% to the highest close since June 4, 2013, extending gains for a seventh day. The stock earlier surged as much as 4.6%. Five out of eight analysts tracked by Bloomberg recommend investors to sell the stock, with two rating it a “hold” and one a “buy”.

“The competition is tough especially in the hypermarket sector,” Poh said. “If you read the newspapers you see a lot of price wars going on. We have been able to maintain our hold so far. I wouldn’t say it is actually easy.”

Aeon Malaysia formed a joint venture with Thailand’s furniture retailer Index Living Mall Co in September to set up shops in Malaysia.

“It would only excite the market when there are mandates for us to expand regionally,” Poh said. “That’s not in the business direction yet.” — Bloomberg


This article first appeared in The Edge Financial Daily, on June 25, 2014.