AEON’s 1QFY23 net profit of RM38.2mn was in line with ours and consensus expectations accounting 27.6% and 28.1% of full year forecast respectively. Net profit rose by 35.9% YoY driven by higher sales from both retailing segment (+9.8%) and property management services (14.5%) and improved profit margin. Outlook for FY23 will be driven by higher mall occupancy rate, positive rental reversion, and better products mix. Maintain a BUY call with TP of RM1.58, based on  16x PER pegged to FY23F EPS.

• Within expectations. 1QFY23 net profit of RM38.2mn (QoQ: +53.4%,  YoY: +35.9%) was in line with ours and consensus expectations accounting 27.6% and 28.1% of full year forecast respectively.

• QoQ. Aeon’s 1QFY23 revenue increased by 4.2% to RM1.1bn, thanks to  the rise in both retailing segment (+9.8%) and property management  services (+14.5%). Retailing segment benefited from higher consumer spending on festive season (i.e., CNY), while property management  services mainly gained from rental rate renewal. Encouragingly, net profit leaped by +53.4% to RM38.2mn on the back of higher revenue,  lower interest expense due to decreasing debt and lower effective tax  rate.

• YoY/ YTD. Revenue and net profit increased by 10.5% and 35.9% YoY respectively, on the back of better sales and lower operating cost. Sales  of retailing segment increased by 9.8% was bolstered by festivities spending as well as economic and border reopening. Property  management services growth of 14.5% was driven by improvement in  occupancy rate in line with consumers’ sentiment returning to physical  malls.

• Outlook. 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 the Online-Merge Offline (OMO) approach and offer better products mix. Additionally, mall occupancy rate is expected to improve c.93%-95% in FY23 (versus FY22: 91.4%). Compared to other mall operators and department stores like Parkson, we believe AEON offers more value-for-money products  that fit well and cater to the M40 group of customers. Moving forward,  we expect margin to remain stable supported by steady operational productivity and effective cost efficiencies.

• Our call. We make no changes to our earnings forecast. 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 - 19 May 2023