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Aeon Co (M) Bhd
(Jan 27, RM12.80)
Upgrade to hold at RM12.90 with a higher target price of RM14.84: Last year, Aeon: (i) entered into a joint venture with a Thai furniture company; (ii) acquired a piece of land in Mukim Tebrau, Johor; (iii) entered into a sale and leaseback agreement with Aeon REIT Investment Corp Japan; and more importantly (iv) reported a staggering 22% jump in its net profit for the first nine months of financial year 2013 (FY13). We are cautiously optimistic about the furniture endeavour but new mall openings and robust same store sales growth (SSSG) will remain its key catalysts.
Although some may argue that retail space in the Klang Valley is saturated, new malls continue to mushroom with seven new malls and five refurbishments in the pipeline. This is expected to add another five million sq ft of retail space in the Klang Valley for the current year. This, we opine, may be due to the more holistic and theme-based nature of malls today as opposed to just providing the basic necessities five years ago.
Despite the busy year ahead, Aeon is also channelling most of its land acquisitions outside the Klang Valley, where retail space saturation is still thin. SSSG is expected to remain promising on the back of higher tourist arrivals and government handouts. Downside risks to this however, are subsidy cuts, expansion of local and foreign retailers, weaker consumer spending outside the Klang Valley and the implementation of the goods and services tax (GST).
Our view is prudent with its three-year (FY13 to FY16) net profit compound annual growth rate (CAGR) at only 12.9% compared with a historical net profit CAGR (FY09 to FY12) of 16.8%. Furthermore, its three-year (FY22 to FY25) net profit CAGR is forecast to drop further to 2.4% prior to going terminal. Upgrade to hold. — TA Securities, Jan 27
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This article first appeared in The Edge Financial Daily, on January 28, 2014.
