We came away from the recent engagement with the AEON management with the following key takeaways:

1. Effective Marketing Strategies Which Drive Footfall and Sales.
2. New Store Expansion in FY24 & New Mall in FY26.
3. Target 90% rental renewal rate in FY23 & positive rental reversion rate in FY24.
4. Realigning Focus on ESG Initiatives.

We tone up our FY24 earnings forecast mildly by 2.4% to reflect the contributions from new Aeon store, Aeon Wellness outlet and Daiso store by FY24. Maintain Buy with a target price of RM1.57/share, unchanged based on DDM valuation (k: 7.1%; g: 3.0%).

Effective Marketing Strategies That Drive Footfall and Sales

AEON has recently implemented new marketing and promotional campaigns. For instance, Aeon Thank You Day, Black Friday Sales and Year-end campaign with the promotion of RM10 e-voucher for every RM100 spent. During the Thank You Day event, an additional RM10 reward voucher was offered to customers who made payments using the AEON e-wallet or AEON Credit. Generally, management disclosed that these events would drive the footfall and result in higher sales compared to the normal period. With the ongoing initiatives on marketing strategies and promotional campaigns, we anticipate that AEON will be able to maintain the average basket size of c.RM63 for FY24.

New Store Expansion in FY24 & New Mall in FY26

To recap, the group has planned to establish 1 new Aeon store (located in Setia City Mall) with an area size of 150k sf by 1QFY24. Besides, the group is poised to increase additional 3 Aeon Wellness outlets and 3 Daiso stores in FY24. We expect these new outlets and existing Aeon operations to contribute to c.2% growth in retail segment revenue. Looking forward, the group is mulling over a new AEON mall in midtown of Kuala Lumpur by FY26. However, there is no concrete details for now as it is still in preliminary stage.

Target 90% rental renewal rate in FY23 & positive rental reversion rate in FY24

AEON secured more than 80% of the renewals as of 3QFY23 and is targeting to achieve c.90% of tenancy renewals in FY23. Hence, we expect the rental renewal rate is likely to sustain at c.90% in FY24, supported by the resilient domestic spending and an improvement in footfalls. Management guided that AEON currently possesses bargaining power in filtering more appealing tenants for its malls and we attributed this to its strategically neighbourhood-based shopping mall alongside growing footfall, which surpassed 93% as of endNovember 2023. Consequently, there has been an improvement of +c.10% YoY on rental reversion in 9MFY23, and we expect AEON to achieve a positive rental reversion rate in FY24 as well.

Realigning Focus on ESG Initiatives

AEON has planned to install solar panels for its 14-owned malls and the first phase of the installation for 6 malls is still ongoing. Out of the 6 malls, 2 AEON malls (Aeon Cheras Selatan Mall and Ayer Keroh) have completed the installation of solar panels. Management guided that no funding requirement for the solar projects as it was funded by GSPARX Sdn Bhd. In turn, the group is expected to enjoy c.5% to 10% cost savings in electricity bill.

Impact

We moderately tone up our FY24 earnings projections by 2.4% to reflect the growth in existing operations and the contribution from the new Aeon store in Setia City Mall, as well as the openings of Aeon Wellness outlets and Daiso stores by FY24.

Valuation

Maintain Buy with unchanged target price of RM1.57/share based on DDM valuation (k: 7.1%; g: 3.0%)

Source: TA Research - 15 Jan 2024