AEON-The Kenanga Prediction

A Value- Buy Ex-All?

Kenanga Investment Research has put out an underperforming call on AEON.

It has downgraded AEON at the current RM 15 level to below RM 14 or to be more exact to RM 13.78 from an earlier Top price (TP) of RM 13.83. This is six sen short of the former price expectation.

Rolling forward to FY15 estimated earnings per share (EPS), it has maintained a price to earnings ratio of 19X for this counter.

The change of heart at Kenanga on AEON was based on the slightly lower profits and higher costs occasioned by increasing operating expenses and higher utility bills  by the group,effected in  Q1F14, particularly with new store openings and promotional costs.

Kenanga said AEON's net profit for the first quarter 2014 (Q1,F14) amounted to RM 46.9 mil which made up 18% of the full year consensus estimates.

However, it has been noted by Kenanga that while  topline growth met the research house's expectations at 25% ,its earnings were slightly below expectations as the first and second quarters were traditionally weaker quarters compared to a stronger 2H as promotional expenses tends to be front-loaded.

On the upside, Kenanga said AEON's longer-term growth prospects appear positive as it plans to open another three new AEON outlets and two MaxValu stores in smaller towns such as in Bukit Mertajam, Taiping and Klebang in the next three years as well as its strategic  intention to branch into Sabah and Sarawak to have a presence there.

As a result of Aeon's expected lowered earnings estimates, Kenanga has reduced the TP slightly to RM 13.78 (from RM 13.83) (ex-bonus and split target price of RM3.44).

My Comments:

The share is now trading at RM 15.00. Unless it goes down further during the cum period, the theoretical price adjustment should be RM 3.75.

If this stock is demand-driven when it goes ex-all, then expect some aggressive spurt buying by pent-up potential buyers who could not get in at the cum RM 15.00 price level.

We will have to wait until June 2 to see what is the market perception of the price of AEON stocks.