Results below expectations; maintain HOLD
4Q15 earnings were below our and consensus estimates mainly due to higher opex and interest cost. However, a proposed first and final net DPS of 5.0sen was above our expectations. We remain cautious on AEON’s near-term outlook due to the soft consumer sentiment which could lead to slower consumer spending. Maintain HOLD with a lower TP of MYR2.40 (-35sen; pegged to 20.5x FY16 PER).
Earnings dragged by higher opex
4Q15 core net profit was MYR38.3m (-49.1% YoY, +27.6% QoQ), bringing FY15 core net profit to MYR133.4m (-32.8% YoY) and accounting for 91/83% of ours/consensus’ full-year estimates. YoY, 4Q15 earnings were largely dragged by the Retail segment whereby operating profit was only MYR35.7m (-40.9%) due to higher opex. Retail revenue also eased by - 0.4% to MYR834.7m which could indicate that consumer spending has slowed down. Meanwhile, Property Management Services segment’s operating profit decreased by -4.1% YoY to MYR52.6m, also due to higher opex, despite higher revenue (+5.7%) from new stores’ contributions. Elsewhere, 4Q15 bottomline was also affected by higher interest cost from increased borrowings to fund its expansion plans.
Lowered earnings forecasts
We reduce our FY16/17 net profit forecasts by 16.0/18.2% after adjusting for FY15 results and lowering our topline and margin assumptions. We also introduce our FY18 forecast.
Cautious on near-term outlook
We remain cautious on AEON’s near-term earnings growth in anticipation of slower consumer spending from higher living costs. Nonetheless, we believe the Property Management Services segment’s stable recurring income would continue to support AEON’s earnings. The segment’s contribution to group operating profit has consequently risen to 82% in FY15, from 65% in FY14. Maintain HOLD.
Source: Maybank Research - 26 Feb 2016
