Saturday, June 01, 2013

AEON Co valuation based on Quarter 1's results

The reasons why I started my writing with AEON are that

  1. its current price at RM17.64 is ridiculously high due to a few reasons, and
  2. for another reason, such price may not be really crazy

But in either cases above, one thing for sure, it is definitely not the right price for me to buy more into this stock.

The price is too expensive:

  • Unless there is new announcement that gives a different financial picture, I think the fair price for AEON is still at between RM9.00 - RM12.00. At such price the P/E ratio of forecast earning is in the range of 12.5 - 16.7 times.
  • This stock has very low trading volume. Prices can be easily affected by just a few traders. I can only guess that some punters are playing up the share price.

But what are the reasons that may justify current high price:

  • If the management decided to dispose its property at market value, the increase of price beyond reasonable of P/E ratio can be justified. But based on research report, we know the management is not keen.
  • If the management decided to dispose its property and decided not to retain control over the property management, then such disposal will hurt its Retailing business. On the other hand, if the management decided to dispose the property to a REIT and retain control over the property management, then the new REIT will be loaded with debts and interest expenses that eventually will hurt the Retailing business too.
  • On a more far fetched speculation, as AEON's book carries high value property, are there corporate raiders quietly accumulating this stock until they get sufficient votes to force current management to sell its property and realize a huge short term disposal gain? This is quite unlikely though make a good story. :-)
  • Big blocks of shares are traded among/ by Employees Provident Fund, Aberdeen Asset Management Asia Limited and Mitsubishi UFJ Financial Group, Inc for several months. Maybe these are just normal trading activities or maybe there are something more than apparent that I don't really understand.

In all cases above, they are not good for the long term prospects of the business.

Cut the long story short, if I were to buy this stock more for investing (and not trading or speculating), the price should not be more than RM11.00, unless and until the next announcement that reflects a different scenario. (Its Q2 results will be announced in August 2013)