It was reported that Aeon Co. had entered into a conditional Sale and Purchase Agreement with Liziz Standaco Sdn. Bhd to acquire 8.691 hectares of commercial land in Bandar Kota Bahru, Negeri Kelantan. The total purchase consideration is RM165m, and the deal is expected to be completed by 3QCY23.
Research house MIDF is optimistic about the land acquisition as it gives higher stability to Aeon’s operation of AEON Mall Kota Bharu. Note that Aeon is now leasing the site to operate AEON Mall Kota Bharu. With the land acquisition, Aeon would have control over the property without worry of lease expirations or rental hikes that would affect operation of AEON Mall Kota Bharu. Besides, the land acquisition could potentially result in long-term cost savings given that the group
would no longer have to pay rent to a third-party landlord. Also, the acquisition is part of the company’s corporate strategy to concentrate on and grow its future retail operation.
The group intends to use internally generated funds to fund the acquisition. Given that Aeon has strong cash and cash equivalents of RM237.5m as of FY22 and a low net gearing ratio of 0.1x, funding is not an issue for Aeon. Post-completion of the acquisition, it is expected thenet gearing ratio to remain healthy at 0.2x, below its 0.4x 5-year historical norm.
In this instance, the house maintains a BUY call with an unchanged TP of RM1.90 on the share. MIDF also maintains its earnings projections pending the completion of the land acquisition. AEON’s FY23 outlook is also positive underpinned by its: initiative to develop a variety of in-house private brands and labels at a reasonable price that is attractive to the B40 to M40 income group; and efficient cost-saving measures that may support the margin.
Besides, the house is optimistic that the group will benefit from out-of-home consumption on the back of the increasing tourist traffic post-reopening.
