Aeon’s FY17 results to meet expectations

KUCHING: Aeon Corporation (Malaysia) Bhd’s (Aeon) financial results for the fourth quarter of financial year 2017 (4QFY17) which are set to come out on Feb 28, should meet expectations with earnings coming in at a range of RM26 to RM32 million.

In a corporate update, MIDF Amanah Investment Bank Bhd (MIDF Research) said expected earnings will be higher than the RM25 million reported in 4QFY16 as the group’s earnings have been supported by higher contribution from the property management segment which helped offset slowed growth in the retailing segment.

For the first nine months of FY17 (9MFY17), the group’s retailing segment saw subdued growth of approximately 1.5 per cent year over year (y-o-y) due to the later celebration of this year’s Chinese New Year (CNY) which falls in the mid of Feb instead of the end of January in 2017.

The timing of the upcoming CNY season has caused some impact on sales for the gorup’s retailing segment in 4QFY17 as substantial festivity purchase for CNY only started in January 2018.

“Fortunately, the weaker performance for the retailing segment will be mitigated by the profits generated by the property management segment, partially due to the opening of AEON Bandar Dato’ Onn, Johor Bahru towards the end of 3QFY17.

“Including 9MFY17 earnings of RM57.3 million, we expect full year FY17 earnings to come in within ours and consensus expectations, in the range of RM83 to RM89 million,” said the research arm.

Despite this expectation however, MIDF Research reckons that the group will be in for a harder time in FY18 due to a challenging retail segment and their decision to cut down in developmental capital expenditure (capex).

“We expect the outlook for the retailing segment to remain challenging in view of intense competition in the local retail market.

“At present, AEON supermarket is the largest contributor to the retailing segment with a contribution of approximately 48 per cent of the retailing segment’s revenue.

“While Aeon supermarket showed resilient growth in the past quarters, its margin is among the lowest in the retailing segment.”

And adding to that, Aeon’s management has also budgeted for a more prudent capex of circa RM500 million to be allocated for the next two years to cater for its ongoing projects: Aeon Kuching set to open in April, Aeon Nilai set to open in 2019, and Aeon Taman Maluri’s renovation project set to be completed at the end of 2019.

This is in stark contrast of the robust RM400 million budgeted for 2017.

All things considered, MIDF Research revised its FY18 earnings estimates for Aeon downward by 12.6 per cent, mainly to account for a slower than expected recovery of the group’s departmental store performance, and a reduction in developmental capex which will taper the growth for property management segment going forward.

MIDF Research maintained its ‘neutral’ call on the stock with a lowered target price of RM1.70, based on price earnings ratio and earnings per share of 27 fold and 6.3 sen respectively.

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