Aeon Malaysia Plans Smaller Stores Amid Mall Competition

Aeon Co. (M) Bhd., the Malaysian unit of Japan’s largest retailer, is diversifying into furniture and electronics stores as competition from new shopping malls intensifies. The stock rose to a one-year high.

Aeon Malaysia doesn’t have a mandate to expand regionally yet and is focused on enlarging its domestic operations, Executive Director Poh Ying Loo said in an interview in Kuala Lumpur yesterday. The company operates shopping centers, department stores and pharmacies in the country.

“Competition, changing consumer market behaviors all warrant this kind of evolving change,” Poh said. “Retail industry is actually very competitive. There’s an ample increase in retail space in the last one year and it’s going to increase further in the next two or three years.”

Retailers in the Southeast Asian nation are seeking new ways to lure customers as price increases on fuel, power and sugar slow private consumption. Aeon Malaysia plans to spend 1.4 billion ringgit ($435 million) this year and next to open more stores and refurbish existing ones as it prepares for a goods and services tax that it says may hurt sales for three months after implementation in April.

Private-sector consumption expanded 7.1 percent in the first quarter from a year earlier, after climbing 7.4 percent in the last three months of 2013, according to central bank data. Aeon’s competition in Malaysia includes Tesco Plc, the U.K.’s largest grocer.

Core Holdings

“Aeon Malaysia has been one of our core holdings for the past 15 years,” said Gerald Ambrose, managing director of Aberdeen Asset Management Sdn., which owns shares in the stock. “The company does seem to have the ability to grow their business.”

Shares of Kuala Lumpur-based Aeon rose 1.7 percent to the highest close since June 4, 2013, extending gains for a seventh day. The stock earlier surged as much as 4.6 percent. Five out of eight analysts tracked by Bloomberg recommend investors sell the stock, with two rating it a hold and one a buy.

“The competition is tough especially among the hypermarket sector,” Poh said. “If you read the newspapers you see a lot of price wars going on. We have been able to maintain our hold so far. I wouldn’t say it is actually easy.”

Aeon Malaysia formed a joint venture with Thailand’s furniture retailer Index Living Mall Co. in September to set up shops in Malaysia.

“It would only excite the market when there are mandates for us to expand regionally,” Poh said. “That’s not in the business direction yet.”

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