Despite expanding performance, stock price remains sluggish. Can AEON Mall expect long-term growth?

For locals and those raising children, many people may rely on Aeon Mall (8905).

I fit both categories, so it’s become indispensable for me.I feel like I go at least twice every weekend. I visited this Golden Week as well, and the mall was bustling with many customers.

The real estate business of renting Aeon Mall as a tenant

The business model is,to build shopping malls and rent them out to tenants as a real estate business. Of course, Aeon’s supermarkets also occupy the tenants. They have advanced construction mainly in regional and suburban areas.

Currently, they operate 176 stores domestically and 27 stores overseas.Their performance has continued to expand, setting a new record-high profit last year.

Investors’ concerns about future obsolescence?

While performance is solid, the stock price has not risen much.Recently, it also updated its year-to-date low.

Even as earnings rise, since the stock price does not follow suit,the price-to-earnings ratio is 11x and the price-to-book ratio is 1x. This divergence between earnings and stock price feels somewhat odd.

A low PER can indicate,slowing growthandpotential risksmay exist.

Indeed, domestically they seem to have already saturated major regional cities.A model that cannot increase stores makes it hard to significantly grow earnings.

On the other hand, malls become obsolete as they age, soafter expansion there could be a decline.

Overseas expansion as a hopeful star to offset stagnation

While the domestic market has plateaued,overseas expansion offers hope. They are opening stores in China and Southeast Asia one after another. Last year, they finally achieved profitability in the overseas division.

If overseas grows significantly, it could offset domestic stagnation. The company appears to anticipatethat 30% of operating profit will come from overseas in the future, and they seem to recognize challenges and have taken necessary measures.

Can they create appeal beyond shopping?

Even so, business challenges don’t disappear easily.

In the domestic market, growth has accelerated in the past five years.If these become outdated, foot traffic could decline, and renewing them would incur costs. This is a difficult steer for commercial real estate.

Also, if you’re just shopping,the rise of the Internetis remarkable. To bring people to the mall, you need to offer more than just buying—an enjoyable experience.

Aeon Mall indeed has well-equipped children’s restrooms and events, and it’s a great aid for families including me. However, the stores inside are, in the end, a collection rather than having a distinctive feature.

For long-term growth,they must find something addictive for customers beyond mere convenience, which applies not only domestically but also to emerging markets where real stores compete with online expansion.

Regarding the stock price,PBR at 1x seems to be bottoming out, and downside risk is small. In the near term, earnings are likely to continue growing. It isn’t a bad investment, in my view.

However, in the longer term, the risk of obsolescence is not small, and due to the nature of the business model, it won’t grow dramatically. If I were to allocate investment funds more efficiently, I’d look for other stocks with higher expected value.

The consumption tax increase planned for October could become a litmus test for long-term growth.