• Upgrade BUY (TP: RM1.75). AEON’s 1HFY24 PBT of RM140.3mn was inline with our full-year forecasts at 55%. Revenue increased by 2.3% YoY in 1HFY4, supported by stable consumer spending from Retails business (+0.7% YoY) as well as improvement in occupancy rate and effective rental renewal in Property Management Services (+10.9% YoY). The group’s PBT jumped higher to RM140.3mn (26.2% YoY), with margins improving of 1.2 ppts YoY to 6.4%, mainly driven by better cost efficiency management. However, on QoQ basis, 2Q24 PBT of RM45.5mn was lower by -52% due to strong festive season sales in previous quarter. We are positive on AEON’s outlook, supported by expected stable demand in the retail business due to an improved labour market and EPF Account 3 withdrawals, while AEON’s Property Management Services (PMS) segment is expected to benefit from new mall rejuvenation, higher occupancy rates, and favourable rental income rates. Our TP increased to RM1.75 (from RM1.32) as we rolled over our valuation to FY25F EPS of 11.7sen and pegged to higher PER of 15x (AEON’s 5-years average historical forward PE). With a potential upside of 17% from our TP, we have upgraded the stock to a BUY.

• Key highlights. AEON’s 2Q24 net profit dropped to RM27.7mn (51.8% QoQ, 8.3% YoY), primarily due to lower sales in Retail (-14.7% QoQ, -3.1% YoY), resulting from the seasonal factor of higher sales and timing of the festive season in previous quarter. The PMS segment saw a slight drop of -1.5% QoQ, but improved by +8.9% YoY compared to 2Q23, due to an improved in occupancy rate and effective rental renewals.

• Earnings Revision. No changes in earnings forecast

• Outlook. We expect earnings growth in the upcoming 3Q2024 quarter to be muted before a strong pick-up in 4Q2024, supported by year-end festive sales. Overall, we are positive on AEON’s outlook, supported by expected stable demand for retail business, while AEON’s PMS segment is expected to benefit from new mall rejuvenation, higher occupancy rates, and favourable rental income rates. AEON’s effective cost management includes self-checkout payment machines, which reduce staff expenses and increase the productivity of the stores, as well as optimizing energy control measures.

Source: BIMB Securities Research - 30 Aug 2024