• AEON outlook remain intact supported by the company’s dynamic  strategy of rejuvenating existing malls, shift to more variable rents,  and higher adoption of Online-Merge-Offline (OMO) in addition to  better products mix.

• Core net profit is projected to grow at a 3-year CAGR of 15.9% over  2021-2024F on the back of strong revenue, with margin expected  to remain stable thanks to effective cost efficiencies.

• Estimate a DPS of 4.0sen/ 4.4sen/ 4.7sen for FY22F/FYY23F/FY24F  respectively, translating into a decent DY of 2.9%-3.4%.

• We re-initiate coverage on AEON with a BUY call and TP of RM1.58,  pegged at 16x PER to FY23 EPS of 9.85 sen.

Brief description of business

AEON Co (M) owns and operates general merchandise stores,  supermarkets and malls. Last year AEON offers a Personal Shopper  Service, Drive-Thru Service and Delivery Service via myAEON2go ecommerce platform. With over 182 total outlets in Malaysia and 2,903  tenant partners, it has successfully built a strong brand name and  delivering quality shopping experience to its customers.

Outlook remain intact

Weak consumer sentiment and uncertainty over global economic  outlook is adding pressure to its retail business. Nevertheless, we expect  AEON to continue anchor its profits through value-added strategy by  rejuvenating existing malls, shift to more variable rents, pushing greater adoption of Online-Merge-Offline (OMO) approach and offer better  products mix. 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 burgeoning numbers of M40 group customers. EBITDA margin is expected to remain stable or at 19-20%  supported by steady operational productivity and overall effective cost  efficiencies. On this note, we expect AEON’s core net profit to grow at a  3-year CAGR of 15.9% over 2021 – 2024F.

Dividend prospect

AEON does not have a formal dividend policy but historically the group  has been paying on average 30-50% of its earnings in the past 10 years.  Assuming a 45% dividend payout ratio, we expect AEON to declare  4.0sen/ 4.4sen/ 4.7sen DPS for FY22F/FYY23F/FY24F respectively,  translating into a decent 2.9%-3.4% DY at current price level.

Re-initiate with a ‘BUY’ call and TP of RM1.58

We re-initiate coverage on AEON with a BUY call and TP of RM1.58,  pegged at 16x PER to FY23 EPS of 9.85 sen. Our valuation is derived  based on 0.5-SD below mean of AEON’s 5-year historical average  forward PER. Our TP offers almost 15% upside potential and close to  19% total return and hence, our BUY recommendation.

Source: BIMB Securities Research - 28 Nov 2022