31 December 2014

Senawang, Negeri, Land Buy Good For AEON

  31 December 2014

HONG Leong Investment Bank (HLIB) is positive on AEON Co (M) Bhd's recent land acquisition in Negri Sembilan, saying that it will provide the retail company with additional rental and retail income.

HLIB described the 8.4ha land’s cost of RM53.6 million as fairly reasonable, given its location in a prime commercial belt, in the heart of the town centre of Senawang, with good road accessibility.

“We believe the land transaction of RM59 per sq ft is fairly reasonable,” it said in a research note yesterday, adding that AEON’s property management division has been the key driver for its earnings.

AEON has planned for the development of a shopping centre with car parks and department stores-cum-supermarket on the acquired land.

HLIB said this will strengthen the company’s foothold in the state, in which it has only one shopping centre to date.

“The acquisition is also in line with AEON’s expansion strategy to build more AEON stores and solidify its presence in Malaysia,” HLIB added.

“We estimate that capital expenditure would be on a high side of between RM500 million and RM600 million for financial years 2014-2015,” it said.

HLIB has reiterated its “hold” call on AEON, with an unchanged target price of RM3.42 pegged to 21.9 times price-earnings 2015 earnings per share of 15.6 sen.

“We like AEON for its diversified and unique business model. However, taking into account the presence of short-term macro headwinds and weaker consumer sentiment and spending.

“This includes weakening of consumer sentiment and spending post Goods and Services Tax implementation, threat of intensifying competition, slower-than-expected expansion plan and higher-than-expected new store expenses,” it said.

Based on the historical trend, HLIB expects the new store to commence operation as an AEON retail outlet by 2016-2018. With a land size of 909,500 sq ft, it estimates that the net lettable area could range from 550,000 to 600,000 sq ft.

-- NST

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