AEON's net profit for 2QFY23 fell to RM30.2mn (QoQ: -20.9%, YoY: -36.2%) mainly attributed to a decrease in revenue caused by the previously higher base of pent-up demand and an increase in operating costs. The decrease in revenue was primarily driven by the Retailing segment (QoQ: -8.2%, YoY: -7.9%), as sales began to normalize. Overall, 1HFY23 net profit of RM68.4mn was in line with ours and consensus expectations accounting for 49.5% and 50% respectively. Outlook for FY23 will be driven by improved mall occupancy rate, positive rental reversion, better products mix and inbound tourists spending. We reiterate our BUY recommendation for AEON with a TP of RM1.58.

• Within expectations. 1HFY23 net profit of RM68.4mn was in line with ours and consensus expectations accounting for 49.5% and 50%, respectively.

• QoQ. AEON’s 2QFY23 revenue declined by 6.7% QoQ to RM1bn dragged by Retailing segment (-8.2% QoQ). This was attributed to the normalization of sales, whereas revenue in 1QFY23 had been boosted by CNY festivities spending. On the other hand, the Property Management Services (PMS) segment’s revenue increased by 2.2% QoQ, thanks to contributions from rental rate renewal. AEON's net profit dropped by 20.9% QoQ to RM30.2mn on the back of lower revenue and higher depreciation, although partially mitigated by reductions in operating costs.

• YoY. Revenue declined by 5.7% YoY mostly dragged by Retailing segment (- 7.9% YoY) caused by previous higher base effect. Notably, the previous 2QFY22 had exceptionally high revenue due to pent-up demand following the reopening of economy, increased spending during Hari Raya festivities and a special EPF withdrawal in April 2022 which boosted consumer purchasing power. In contrast, the PMS segment’s revenue increased by 7.5%, driven by improvements in occupancy rate. AEON’s net profit dragged further by 36.2% YoY, primarily due to the decrease in revenue and increase in overall operating costs. This led to a 1.4 ppts YoY compression in profit margin.

• Outlook. The uncertainty over global economic outlook is adding pressure to retail business. Nevertheless, we expect AEON to continue anchor its profits through value-added strategy by rejuvenating existing malls, positive rental reversion, pushing greater adoption of Online-MergeOffline (OMO) approach and offering better products mix. Additionally, mall occupancy rate is expected to improve c.93%-95% in FY23 (vs FY22: 91.4%). Compared to other mall operators and department stores such as Parkson, we hold the belief that AEON offers more value-for-money products and is reinforcing its affordability-focused private brands (i.e. Topvalu, Home Coordy, and Innercasual) that fit well and cater to the B40 and M40 group of customer.

• Our call. Maintain a BUY call recommendation with unchanged TP of RM1.58 pegged at 16x PER to FY23 EPS of 9.85 sen.

Source: BIMB Securities Research - 23 Aug 2023