KUALA LUMPUR: Kenanga research has downgraded Aeon Co (M) Bhd to market perform as 1H19 earnings came in below expectations.
In a note, the research house slashed its target price on Aeon to RM1.70 from RM2.10 previously as first-half core net profit of RM55.6mil met only 39% and 42% of its and consensus full-year estimates.
"We cut our FY19-20E by 25-21% to reflect lower-than-expected sales as well as adjusting for a higher effective tax rate of 48% (previously at 40%) and lease interest charges under MFRS 16," it said.
Kenanga said Aeon's 2Q19 sales were weaker than expected despite being one of the seasonally stronger quarters.
On a quarter-on-quarter basis, 2Q19 core net profit plunged 39% due to lower sales and a higher effective tax rate of 51.3% from 41.4% in the previous quarter.
On a half yearly basis, core net profit slipped 0.3% year-on-year despite 6% higher sales due to changes in the MFRS16 accounting standards.
"The stronger sales was attributed to higher contribution from the new AEON Mall Kuching (commenced in 2Q 2018) and maiden contribution from the new AEON Mall Nilai, Negeri Sembilan (commenced in January 2019) as well as its other shopping malls that were renovated and expanded," said Kenanga.
Moving forwards, Aeon opened a new AEON mall in Negeri Sembilan in January this year and allocated RM400mil capex for FY19 for the construction of the new mall and renovation of existing malls.