Aeon’s chalked in 1Q21 core PAT of RM22.0m (QoQ: -18.9%, YoY: >100%). This was in line with our and consensus expectations, accounting for 25.6% and 24.0% of forecasts, respectively. Core PAT staged an impressive turnaround (2.9x YoY) on the back of (i) improvement in merchandise gross margin, changes in marketing mechanics and stringent cost control measure that help boosted its EBITDA margin by +3.3ppt; and (ii) lower effective tax rate (1Q21: 47.3%, 1Q20: 70.5%). Maintain BUY with unchanged TP of RM1.32 pegged to an unchanged 19x PE multiple of mid FY22 earnings.

Within expectations. Aeon chalked in 1Q21 core PAT of RM22.0m (QoQ: -18.9%, YoY: >100%). This was in line with our and consensus expectations, making up of 25.6% and 24.0% of forecasts, respectively.

Dividend. None Declared. (1Q20: None).

QoQ. Top line improvement of +10.6% was thanks to boost in sales during Chinese New Year despite the implementation of MCO2.0 in mid of Jan 21. Revenue from retailing recorded an increase 13.3% while property management services (PMS) remained weak (-4.4%). Despite higher top line, core PAT weakened by -18.9% to RM22.0m. This was on the back of lower EBITDA margin recorded (-3.4ppt) coupled with higher effective tax rate for the quarter (+15.5ppt).

YoY. Sales decreased (-14.9%) in both retailing (-14.0%) and PMS (-20.4%). PMS revenue continues to be derailed from the subdued footfall which resulted in lower tenant renewal rate and early termination of tenancy agreements. Despite muted sales, core PAT staged an impressive turnaround (2.9x YoY) on the back of (i) improvement in merchandise gross margin, changes in marketing mechanics and stringent cost control measure that help boosted its EBITDA margin by +3.3ppt; and (ii) lower effective tax rate (1Q21: 47.3%, 1Q20: 70.5%).

Outlook. We opine that 1H21 will likely fare better YoY as restrictions in MCO2.0 were less stringent than its predecessor last year. Going into 2H21 we believe that retail sales is poised for a strong rebound as we expect loosening of travel restrictions going forward as vaccine rollouts picking up at an urgent pace. 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. Unchanged.

Maintain BUY, TP: RM1.32 pegged to unchanged 19x PE of mid FY22 EPS. Despite the looming uncertainties, we expect stringent cost control measures to be sustained, providing support to margins moving forward. We are confident in the group agile approach in adapting through with changes in marketing mechanics and sustainable cost reduction structures.

Source: Hong Leong Investment Bank Research - 20 May 2021