Aeon’s 4Q20 core PAT of RM27.2m (QoQ: +66%, YoY: -45.6%) brought FY20’s sum to RM41.4m (-62.1% YoY). This was below our and consensus expectations, accounting for 71% and 76% of forecasts, respectively. Despite the results shortfall, we keep our forecast unchanged as relaxation of MCO restrictions, lower cases of late and vaccine rollout keeps our retail recovery thesis intact. Maintain BUY with higher TP of RM1.32 as we roll over our valuation year from FY21 to mid FY22 based on an unchanged 19x earnings multiple.

Below expectations. Aeon’s 4Q20 core PAT of RM27.2m (QoQ: +66%, YoY: - 45.6%) brought FY20’s sum to RM41.4m (-62.1% YoY). This was below our and consensus expectations, accounting for 71% and 76% of forecasts, respectively.

Dividend. Proposed final DPS of 1.5 sen (4Q19: 4 sen) bringing FY20 to 1.5 sen, (FY19: 4 sen). Ex-date will be announced in due course.

QoQ. Revenue declined by -7.4% to RM916.5m on the back of the weakness in both retailing segment and property management services (PMS). Despite the lower top line, core PAT surged by +66.0% to RM27.2m. This was predominantly on the back of improvement in merchandise gross margin, changes in marketing mechanics and stringent cost control measure that help boosted its EBITDA margin by +2.5ppt.

YoY. Sales decreased (-21.7%) in both retailing (-21.4%) PMS (-23.0%). This was due to the re-introduction of CMCO in 14 Oct in most states and caused the consumer sentiment to dampen despite the festive and year-end sales. Operating profit for retail fell by -60% as resurgence of Covid-19 cases and various restrictions put in place dampened footfall traffic. Subsequently, core PAT declined by -45.6% on the back of lower operating margin recorded -2.5ppt.

YTD. Revenue in retail segment posted a -10.1% decline, owning to the closure of non-essential business for 2 months during the MCO. Revenue from PMS was lower by -14.2% due to the lower occupancy rates as tenants sought for non-renewal or early termination of tenancy agreements. Core PAT reduced further by -62% to RM41.4m due to top line weakness and higher effective tax rate in FY20 of 59.3% (vs 44.5% in FY19) as certain expenses were not deductible for tax purposes.

Outlook. We opine that 1H21 will likely fare better YoY as restrictions in MCO 2.0 are less stringent than its predecessor last year. Going into 2H21 we believe that retail sales is poised for a strong rebound as we expect travel restrictions to be less stringent going forward due to vaccine rollouts and recent decline in daily cases. We remain confident on the group’s longer term outlook with its strategic plans in (i) refurbishing existing malls to attract better foot traffic, (ii) expanding presence in online platform, and (iii) introduction of specialist concept store to drive better margin.

Forecast. Despite the results shortfall, we keep our forecast unchanged as relaxation of MCO restrictions, lower cases of late and vaccine rollout keeps our retail recovery thesis intact.

Maintain BUY, TP: RM1.32. Taking a vaccine led retail recovery view on Aeon, we roll forward out valuation horizon from FY21 to mid-FY22, increasing our TP from RM1.17 to RM1.32 (at an unchanged 19x PE target).

Source: Hong Leong Investment Bank Research - 25 Feb 2021