Review

• Aeon’s 1QFY24 core earnings of RM57.9mn (+45.5% YoY) came in above expectations, accounting for 38% and 45% of our and consensus’ full year estimate, respectively. We attribute the outperformance to operational efficiency coupled with resilient spending during festivities.

• 1QFY24 revenue rose 5.5% YoY to RM1.2bn, driven by growth in both the retail and property segments. PBT and core net profit also surged by 52.7% and 45.5%, respectively, thanks to effective cost management.

• Retail Segment. 1QFY24 EBIT increased by 41.4% YoY to RM54.0mn in tandem with a 4.2% YoY rise in revenue to RM980.5mn. The improved performance was driven by favourable festivities spending.

• Property Management Segment. 1QFY24 revenue and EBIT rose by 13.0% and 16.6% YoY to RM186.9mn and RM68.0mn, respectively. This increase was mainly attributable to effective rental renewals and improvement in occupancy rate. Consequently, segmental revenue increased by 7.2% QoQ, driven by higher sales commissions from its malls during the festive seasons. EBIT also increased by 28.5% QoQ to RM52.9mn.

• No dividend was declared for the quarter under review.

Impact

• Maintain our earnings estimates at this juncture, pending further insights from an analyst briefing today.

Outlook

• The 1QFY24 occupancy rate stood at 94%, which is slightly higher than FY23 rate of 93%. Moving forward, the group will renovate selected Aeon stores and malls with refreshing looks to enhance the shopping experience and attract greater footfall. Meanwhile, management also plans to boost consumer spending through attractive products assortments and various attractive promotional offers.

• We remain guardedly optimistic that the restructuring of EPF accounts will significantly boost consumer spending on staple goods. However, we believe that in the short term, consumer spendings will increase, particularly on discretionary items. In the long term, we anticipate that the strain of rising living expenses, which might otherwise diminish consumer spending, will alleviate thanks to the flexible withdrawal options from Account 3.

Valuation

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

Source: TA Research - 16 May 2024