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| MIDF maintains buy on AEON |
| Written by Financial Daily | |||
| Friday, 25 September 2009 11:20 | |||
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The research house said in a note yesterday that AEON Co Ltd’s forays into Vietnam, Cambodia, Indonesia and possibly Laos could be a catalyst for the company’s growth. “AEON’s managing director has personally been tasked by AEON Co Ltd to look for a site and potential partner in Vietnam. Taking cue from that, we believe AEON will take a stake in the Vietnam venture. We suspect the venture will probably take place at associate level for AEON,” it said of AEON’s first targeted market overseas. Vietnam could be a growth driver as it is the fourth most attractive retail market in the world due to its rising demand for consumer goods and growing disposable income. Meanwhile, retail sales in the country grew at 20.6% per annum from 2000 to 2008, overtaking gross domestic product (GDP) growth of 7.6%.  The research house added that AEON should be able to finance its domestic and regional expansion plans given its strong cash flow and track record. In addition, with a gearing ratio of 0.6 times, it does not foresee any difficulty in AEON securing financing facilities for its endeavours. “In the past five years, AEON’s track average operating net cash flow was about RM250 million per annum,” said MIDF Research. “We continue to like AEON as its double-digit return on equity of about average 14.2% for the past 10 years implies management’s ability to effectively reinvest shareholders’ fund to support its domestic expansion,” it added. AEON has indicated that the expansion plans in Vietnam will only be realised in 2011. Even then, the breakeven period is expected to be longer than local investment of one or two years given the need for AEON to do more discounting and promotional activities in order to attract customers and build its brand name, said MIDF Research. “We anticipate no immediate impact from the possible joint venture to AEON’s bottom line; however, we are positive of the long-term prospects of the investment.” The research house projected net profit of RM129.5 million or earnings per share (EPS) of 36.9 sen for FY09 and RM148.6 million net profit (EPS 42.3 sen) for FY10. Yesterday, AEON fell three sen to close at RM4.72. This article appeared in The Edge Financial Daily, September 25, 2009.
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