PP 7767/09/2010(025354)

Corporate Highlights
Malaysia
RHB Research
` Institute Sdn Bhd
A member of the
RHB Banking Group
R e su lts N ot e Company No: 233327 -M

27 August 2010
MARKET DATELINE

AEON Co Share Price

Fair Value
:
:
RM5.06
RM5.28
1HFY10 Earnings In Line With Expectations Recom : Market Perform
(Maintained)

Table 1 : Investment Statistics (AEON; Code: 6599) Bloomberg: AEON MK

Turnover Net Profit EPS Chg PER C. EPS^ P/NTA Net gearing ROE Gr. Div.
FYE
(RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (%) Yld. (%)
Dec
2010a 2,808.2 133.5 38.0 10.7 13.3 - 1.8 -0.1 13.8 2.4
2011f 2,971.7 144.1 41.1 7.9 12.3 41.0 1.6 Net cash 13.4 2.4
2012f 3,192.0 154.6 44.0 7.2 11.5 45.0 1.5 Net cash 12.9 2.4
2013f 3,479.8 166.6 47.5 7.8 10.7 48.0 1.3 Net cash 12.6 2.4
Main Market Listing / Trustee Stock / Syariah-Approved Stock By The SC ^ Consensus Based On IBES Estimates

♦ In line with expectations. AEON’s 1HFY12/10 net profit of RM75.1m

RHBRI Vs.
Above
Consensus

(+65% yoy) was in line with our and consensus expectations, accounting for
In Line
52% our and consensus forecasts respectively. Below

♦ Net profit surged 65% yoy on the back of a 7% growth in revenues to

Issued Capital (m shares)
Market Cap (RMm)
351
1776.1
RM1.4bn. The stronger earnings were mainly due to improved EBIT margin of
Daily Trading Vol (m shs) 0.1
7.6%, which was higher by 2.2%-pts from 1HFY09. Qoq, earnings were 52wk Price Range (RM) 4.5-5.5
weaker by 17.7% due to the festive season in 1Q10 and also historically, 2Q Major Shareholders: (%)
has always been the weakest quarter. AEON Co. Ltd (Japan) 51.0
Aberdeen Asset Mgt 17.3
♦ Slower store openings projected. We understand that there will be no EPF 6.3
more new store openings in FY10 after AEON’s latest store opened in Bandar
FYE Dec FY10 FY11 FY12
Mahkota, Cheras Apr 10. As highlighted in our previous report dated 10 Aug,
EPS chg (%) - - -
we expected its Bandar Sri Permaisuri store to open at end FY10. However, Var to C.EPS (%) 0.2 (2.2) (1.1)
the opening was delayed due to various issues caused by the developer as
well as difficulty in obtaining government approvals. The Bandar Sri PE Band Chart
Permaisuri store is now expected to open by end FY11 at the earliest, which is
approximately when we expect its Kinta (Ipoh) store to open.
PER = 18x
PER = 15x
♦ Competition heats up in supermarket division. We are not so optimistic PER = 12x
PER = 9x
on AEON’s earnings prospects going forward as we understand that its
supermarket segment is facing intensified competition due to the increased
number of smaller players such as 99 Speedmart, KK Mart, etc. Despite the
increasing level of competition, AEON does not plan to change its business
model and continues to expect its supermarket division to contribute ~40% to
topline. However, our view is that the increasing competition would put Relative Performance To FBM KLCI
pressure on its margins thus eroding earnings.

♦ Forecasts. No changes to our earnings forecast.

AEON Co

♦ Risks. The risks include: 1) eroding market share due to intensifying FBM KLCI
competition; 2) weakening of domestic economic conditions which could lead
to a decline in consumer sentiment; and 3) non-renewal of 1U lease expiring
in Aug 10.

♦ Investment case. As mentioned, historically, 2Q has always been the

weakest quarter. However, we are expecting a weaker outlook for AEON due
to the intensified competition which we believe will cut its margins. Thus, Hoe Lee Leng
(603) 92802641
despite already achieving 52% of our earnings forecast, we believe AEON will hoe.lee.leng@rhb.com.my
not exceed our full year number. Our fair value remains the same at RM5.28
based on unchanged target 12x FY12/11 EPS. Maintain Market Perform.

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Table 2: Earnings Review (YoY)

FYE Dec 2009 2010 2010 % Chg % Chg 2009 2010 % Chg
Observation/ Comments
(RMm) 2Q 1Q 2Q QoQ YoY 1H 1H YoY

Turnover 635.0 730.3 695.7 (4.7) 9.6 1,332.3 1,425.9 7.0 Higher revenue yoy due to
contributions from new stores that
opened in FY12/09 and existing
stores maintaining their
performance.

- Retailing 542.9 633.1 604.7 (4.5) 11.4 1,147.9 1,237.8 7.8

- Property mgt 92.0 97.2 91.0 (6.4) (1.1) 184.4 188.1 2.0 Boosted by increase in lease space
from the opening of new AEON
shopping centres.
EBIT 33.5 59.1 49.4 (16.4) 47.5 72.0 108.5 50.7 Refer to EBIT margin

Net interest (1.2) 0.3 0.3 0.3 (124.9) (1.9) 0.3 (118.0)
income/(expense)

PBT 32.3 59.4 49.7 (16.3) 54.0 70.0 109.1 55.7 Flow through from EBIT and
interest income.
Taxation (12.9) (18.2) (15.8) (13.3) 22.8 (24.6) (34.0) 38.4 Lower effective tax rate.

Net Profit 19.4 41.2 33.9 (17.7) 74.6 45.5 75.0 65.1 Flow through from PBT and lower
effective tax rate.
EPS (sen) 5.5 11.7 9.7 (17.7) 74.5 13.0 21.4 65.1

DPS 0.0 0.0 0.0 na na 0.0 0.0 na

EBIT Margin (%) 5.3 8.1 7.1 (1.0) 1.8 5.4 7.6 2.2 Higher EBIT margin due mainly to
improvements in retail margin
(+3.0% yoy)

Pretax Margin 5.1 8.1 7.1 (1.0) 2.1 5.3 7.6 2.4
(%)
Net Margin (%) 3.1 5.6 4.9 (0.8) 1.8 3.4 9.4 6.0

Effective Tax Rate 39.9 30.7 31.8 1.1 (8.1) 35.1 31.2 (3.9) Higher than statutory tax rate as
(%) certain expenses are not deductible
for tax purposes.
Source: Company, RHBRI

Table 3. Earnings Forecasts Table 4. Forecast Assumptions

FYE Dec (RMm) FY09a FY10F FY11F FY12F FYE Dec FY10F FY11F FY12F

Turnover 2,808.2 2,971.7 3,192.0 3,479.8 Number of new stores 2 0 2

(Jusco and MaxValu)
Turnover growth (%) (18.2) 5.8 7.4 9.0 Same store sales growth (%) 2.5 3.5 5.0

Cost of Sales (1,913.6) (2,032.8) (2,193.3) (2,399.5)

Gross Profit 894.6 938.9 998.7 1,080.4

EBITDA 347.3 359.7 376.6 402.2

EBITDA margin (%) 12.4 12.1 11.8 11.6

Depr&Amor (150.0) (148.1) (150.6) (155.0)

Net Interest (2.8) (2.7) (2.0) (2.1)

Pretax Profit 194.4 208.9 224.0 245.1

Tax (60.8) (64.8) (69.4) (78.4)
Net Profit 133.5 144.1 154.6 166.6
Source: Company data, RHBRI estimates

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IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank
(previously known as RHB Sakura Merchant Bankers). It is for distribution only under such circumstances as may be permitted by applicable law. The opinions
and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or be
contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be
construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any
manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons
may from time to time have an interest in the securities mentioned by this report.

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“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,
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services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommended
securities, subject to the duties of confidentiality, will be made available upon request.

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actions of third parties in this respect.

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