Highlight AEON looks at third Malaysian listing

by **Cals** Mon 13 Jan 2014, 18:31

Highlight AEON looks at third Malaysian listing

Business & Markets 2014

Written by Vasantha Ganesan of theedgemalaysia.com

Monday, 13 January 2014 17:06

ASIA’s largest retailer AEON Co Ltd — which took over Carrefour SA’s Malaysian operation a little over a year ago and renamed it AEON BiG — expects the hypermarket chain to be profitable this year. This will pave the way to a planned listing on Bursa Malaysia’s Main Market in 2016, which will make AEON BiG the first foreign hypermarket to be listed here.

AEON Group already has two listed entities in Malaysia — department store cum supermarket operator AEON Co (M) Bhd and consumer finance provider AEON Credit Service (M) Bhd.

AEON BiG (M) Sdn Bhd managing director Nagahisa Oyama tells The Edge that he is already in discussion with the government to make the listing on Bursa a reality.

Foreign hypermarket operators in Malaysia are required to divest a 30% stake to a local bumiputera partner or firm. AEON BiG has a three-year period from the date of acquisition to rope in a partner. This means that it has to have a local partner by November 2015.

The hypermarket operator is now trying to secure more time to satisfy the 30% bumiputera ruling before floating its shares on the bourse, as well as adhere to all government rulings and listing requirements.

Generally, to qualify for a listing on the Main Market, an applicant must have an uninterrupted profit of three to five full financial years, an aggregate profit after tax of at least RM20 million and a profit after tax of at least RM6 million for the most recent financial year.

“We are looking to list in 2016 and at the latest by 2017,” says Oyama.

He is confident that AEON BiG will achieve profitability at net profit level a year ahead of schedule. Initially, it had given itself three years to return to the black, that is the financial year ending Dec 31, 2015. But now, he expects the hypermarket operator to be profitable by Dec 31 this year.

He reveals that AEON BiG managed to narrow its net loss to an estimated RM52 million in FY2013, from a net loss of RM140 million in 2012. Revenue in 2013 is estimated at RM1.66 billion, up from RM1.59 billion the year before.

Japan’s AEON Co took over the 26 stores — 22 hypermarkets and four superstores — in Malaysia from the world’s second largest retailer, Carrefour, on Nov 1, 2012, for €147 million or an enterprise value (value of debt in the business minus cash in the business) of €250 million.

“This year is very important ... We will invest RM150 million for one store opening and for store renovations,” says Oyama. At least 10 stores will be renovated including the Subang Jaya outlet, where retail space will be added.

He adds that AEON BiG’s revenue has been improving quarter on quarter since the takeover and was predominantly driven by like-for-like growth or same-store sales growth instead of new store expansions. It has added only two stores in the past year.

“We expect to be profitable in 2014 and to do even better in 2015,” he says, but declines to reveal his projected figures.

His reluctance to reveal AEON BiG’s targeted growth is understandable given that the hypermarket business in Malaysia is very competitive and the company is a new entrant to the field.

AEON BiG is currently the smallest foreign hypermarket operator in the country. Giant, owned by Dairy Farm International Holdings Ltd’s GCH Retail (M) Sdn Bhd, operates 127 hypermarkets and superstores in Malaysia while Tesco Malaysia, which is a 70:30 partnership between Tesco plc and Sime Darby Bhd, operates 49 stores here.

AEON BiG has 28 stores now. It also has fewer stores compared with Econsave Cash & Carry Sdn Bhd, which has 55 stores.

Although AEON BiG is considered an infant in the hypermarket business, Oyama expects to propel the business to new heights — the same way he took AEON Co (M) to where it is today.

When he joined AEON Co (M) as managing director in 2005, the company’s turnover was RM1.78 billion and net profit was RM64.2 million. Five years later, in 2010, its revenue surged to RM2.89 billion and net profit to RM165 million. He believes this success can be replicated at AEON BiG. In the year ended Dec 31, 2012, AEON Co (M) posted a net profit of RM212.83 million on the back of RM3.26 billion in revenue.

Oyama says the past one year has been a memorable one, but it was not without its challenges. He reveals that when AEON BiG took over Carrefour’s business, it had to put in large amounts of investments.

“A few years before Carrefour left, there was no investment. So we had to speed up the investments.”

To date, RM50 million has been channelled just for its rebranding and refurbishment exercise involving eight stores.

It is understood that Carrefour had put investments in Malaysia on hold when it first decided to exit the country in 2010. Magnificient Diagraph Sdn Bhd, which operated the Carrefour stores in Malaysia, was however taken to court by its then minority shareholder Tan Sri Aziz Shamsuddin. Aziz had a 30% stake in Magnificient Diagraph, making it difficult for the French retailer to divest 100% of the business.

Soon after, the then Carrefour SA CEO Lars Olofsson made a pledge to stay on and invest in Malaysia. But less than two years later, the business was sold to the Japanese.

When Carrefour first wanted to exit Malaysia, it had 18 hypermarkets and five superstores, although it had the licence to open 21 hypermarkets and six superstores. When it left the country, there were 26 Carrefour stores.

Meanwhile, AEON BiG has already been approached by bumiputera suitors interested in the 30% stake in the currently loss-making operation. However, Oyama says none of the discussions have been serious as he would like the company to be profitable before selling the stake.

“We have told them please wait,” he says.

Logically, AEON BiG will be able to sell the 30% stake at a higher amount once it starts to make money.

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This story first appeared in The Edge Malaysia Weekly Edition, on January 06 - January 12, 2014.