• Overview. Aeon’s 4Q22 revenue grew by 8% QoQ mainly due to higher year-end sales, car park and temporary space rental. Core net profit jumped higher or to RM43.7mn (+145% QoQ) backed by margin expansion from retail segment. On yearly basis, despite registering revenue growth of 7%, core net profit fell by 43% YoY mainly due to higher operating costs i.e., promotional activities and maintenance expenses as well as higher effective tax rate.

• Highlight: FY22 core net profit of RM133.5mn (+43% YoY) was supported by an increase in overall sales and margin. Higher sales for retail segment (+14% YoY) came from the recovery in soft line and hard line goods, consistent with full economic re-opening. Strong property management segment (+16% YoY), on the other hand, was supported by higher sales commission and temporary space rentals received in line with consumers returning to physical malls.

• Against estimates: Above. FY22 core earnings was slightly above our and consensus full year forecast at 106%. The deviation against our estimate was due to lower-than-expected tax.

• Dividend. AEON declared a final single-tier DPS of 4.0 sen (versus 4Q21: 3 sen), equivalent to a payout of 50% which is in-line with our expectation. This translates into a dividend yield of 2.9% at current market price.

• Outlook. The 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, shifting to more variable rents, pushing greater adoption of Online-MergeOffline (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 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 at this juncture. 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 - 23 Feb 2023