• Maintain HOLD (TP: RM1.18). AEON’s FY23 net profit of RM114.8mn (+3.2% YoY) met our expectations but fell short of consensus full-year forecasts, accounting for 100% and 91% respectively. The group declared FY23 final single-tier DPS of 4.0sen equates to a payout of 49% (compared to FY22: 4sen, payout of 53%), resulting in a DY of 3.6%. AEON’s 4QFY23 PBT rose to RM53.8mn (+86% QoQ), primarily due to higher sales during the festive season and margin recovery to 5.2% (+2.2 ppts QoQ) driven by improved cost efficiency management. Both Retail and Property Management Services (PMS) segments experienced sales growth of +8.7% and +5% QoQ respectively. However, we maintain caution on AEON’s outlook, given weak consumer sentiment and tighter disposable income, particularly within the retail business, due to anticipated high inflationary pressure in 2H2024 resulting from government policy measures. We maintain our HOLD recommendation with an unchanged TP of RM1.18, based on a 13x PER (AEON’s -0.5SD average historical forward PE) pegged to FY24 EPS of 9.1sen.

• Key highlights. In 4QFY23, revenue increased by +8.1% QoQ to RM1bn, primarily due to higher sales in the Retail (+8.7%) and PMS (+5.0%) segments, attributed to increased sales during the festive and year-end seasons. The PBT further rose by 86.2% QoQ to RM53.8mn, driven by reduced overall operating costs, resulting in a 2.2 ppts QoQ increase in the PBT margin to 5.2%. Overall, AEON’s FY23 net profit increased by 3.2% YoY due to a lower effective tax rate of 40.8% (-6.6 ppts YoY). However, the PBT level dropped by -8.3% YoY, primarily due to soft sales and increased overall operating costs. Sales in the Retail business segment (which contributes over 80% of AEON's total revenue) declined by -2% YoY due to high base effects from the previous year and partial store closures for renovations. This decline was partially offset by a +9.6% YoY improvement in the PMS segment, driven by higher occupancy rates and effective rental renewals.

• Earnings Revision. No changes to our forecast.

• Outlook. We remain cautious on AEON’s Retail segment earnings growth, particularly for Softline and Hardline goods, despite the resilient growth seen in the Foodline. This is due to softer consumer spending and the anticipated high inflationary pressure in 2H2024, resulting from the introduction of government policy measures such as targeted subsidies and higher goods and services tax. However, the PMS segment should offer some support to lower retail spending in the near term, driven by growing occupancy rates and higher fixed rental income.

Source: BIMB Securities Research - 26 Feb 2024