AEON : Maintain BUY at RM6 with revised TP of RM7.30

Aeon Co’s 3Q results above expectations

Aeon Co (M) Bhd
(Dec 1, RM6.01)
Maintain buy at RM6 with revised target price of RM7.30 (from RM6.70): Aeon’s revenue for the quarter rose by 1.38% year-on-year (y-o-y) to RM708.8 million thanks to: (i) the opening of new stores (Bandar Mahkota Cheras and Bandar Melaka); and (ii) higher contribution from existing stores after refurbishment.

Furthermore, net profit shot up strongly by 42% y-o-y to RM46.2 million due to lower finance cost and higher interest income (+17.6%).

On a sequential basis, Aeon’s revenue and net profit increased by 1.9% and 39.4%, thanks to higher spending during school holidays and major festivals (Hari Raya Aidilfitri).

Aeon’s 9MFY10 revenue and net profit came in at 5% and 56% higher y-o-y. Higher net profit growth was driven mainly by lower finance cost, higher interest income (net finance reduced by 137%) and lower operating expenses on the back of the company’s continuous cost control measures to improve efficiency.
As results came in above our expectations, we are raising our FY10 and FY11 net profit forecasts by 9.5% and 9% to largely factor in lower operating and net interest expenses.

We are bullish on Aeon’s future outlook as consumer sentiment remains stable (3Q10 CSI: 115.8 pts), coupled with strong economic recovery as 3Q10 GDP grew by 5.3%.

Aeon’s FY10 and FY11 net profit is forecast to grow by 20.6% and 13.7% y-o-y to be supported by: (i) the opening of new stores and the refurbishment of existing stores; (i) the improvement in consumer sentiment as a leading indicator to boost consumer spending; (iii) the visibility of festive seasons such as Christmas and Chinese New Year; and (iv) the company’s continuous cost control efforts to improve efficiency.

We are raising our target price on Aeon from RM6.70 to RM7.30 based on target PER of 14 times and revised FY11 EPS of 52.2 sen. As total return, including FY11 dividend yield of 3%, is at 24.8%, we are maintaining our buy call on the counter. — BIMB Securities Research, Dec 1

This article appeared in The Edge Financial Daily, December 2, 2010.