AEON Co’s margin to shrink amid inflationary environment and price lock campaign, says HLIB

KUALA LUMPUR (May 23): Hong Leong Investment Bank (HLIB) Research said that the inflationary environment coupled with the price lock campaign will result in shrinkage in AEON Co (M) Bhd’s margin moving forward.

The research house said it had downgraded its call on the retailer to “hold” with a lower target price of RM1.40 (from RM1.78) as it slashed its FY22 forecast by 6.5% to account for margin challenges.

“AEON’s management shared that the group will roll out another anti-inflationary campaign for core basic items in order to capture customer retention.

“Despite the intention of preserving value for customers, we opine that this will put a strain on the margin moving forward,” it said.

On property management services, HLIB added that with the group's adoption of the commission rental structure as opposed to the traditional fixed rental structure, AEON had garnered higher sales commissions as tenants improved their sales.

With this flexibility, AEON managed to retain more tenants and have a stable occupancy rate for its malls amid the challenging environment, the research house said.

“The income composition for fixed and variable income stands at 58% and 42% respectively,” it shared.

Last week, AEON reported that its net profit grew to RM28.07 million for the first quarter ended March 31, 2022 (1QFY22) from RM22.03 million a year earlier.

However, 1QFY22 revenue was lower at RM1.002 billion versus RM1.013 billion, according to the company.

At the time of writing on Monday (May 23), shares in AEON were traded one sen or 0.66% lower at RM1.51, valuing the retailer at RM2.12 billion.