Aeon Co (M) Bhd

Aeon Co (M) Bhd

Postby winston » Sat Jan 10, 2015 10:10 am

not vested

Stock pick: Aeon Co (M) Bhd

THERE are currently several factors impacting consumer sentiment. To name a few, there are concerns over the strength of the local economy (which is compounded by the oil price situation) and high household debt, while over the short term, we expect uncertainty over the goods and services tax (GST) introduction and the recent AirAsia tragedy to further weigh on sentiment.

Consumer activity is expected to be weak at least for the first half of the year. Aeon would by no means be immune to such headwinds (along with other retailers locally), but we believe it not only has the capability to weather through the current conditions but also emerge from this soft patch in a stronger position.

On the first point, it is worth noting that its retail operations are aimed at mass-market consumers, and while the products offered at its department stores could be termed “discretionary”, they are diversified.

There are also its supermarkets, which are a significant contributor to Aeon’s retail operations and would remain relevant to shoppers regardless of the consumer cycle. Note that the company’s retail operations only contribute to roughly half of its earnings. The other half comes from its property management operations.

Financially, Aeon has been able to churn out strong cashflows (almost RM500mil worth from its operations last year) and has a strong balance sheet with barely any debt.

Secondly, the company has been accelerating its build out of new malls into the second and third-tier cities in Malaysia. While we expect the start-up costs from these new malls to further weigh on its short-term financial performance in conjunction with the current retail environment, the company would benefit from greater contribution to its earnings, both on the property management side and also on its retail performance, especially once consumer sentiment returns.

Managing director,
Aberdeen Asset Management Sdn Bhd.

Source: The Star
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