We gathered that EMCO areas contributed c.40% of the total group revenue. Despite the decline in footfall, Aeon has experienced incremental increase of c.20% in the basket size purchase vs. pre-pandemic. For property management segment, we understand that rental rebates are likely to be smaller than what was provided in April 2020. To spearhead the growth in online contribution, Aeon will officially launch myAeon2go-Boxed partnership by end of August. Additionally, it has set up a vaccination programme and committed to 50k vaccinations as an incentive to help the country to reach herd immunity. Given the lack of positive re-rating catalyst in the near term, we maintain our HOLD call with unchanged TP of RM1.16, based on unchanged 19x FY22 earnings.

We came away from our meeting sensing that management is still cautious in the near term albeit some pockets of opportunities.

Retail challenge. With the FMCO (Phase 1) and EMCO in several localities, the retail sales have been impacted on the back of lower footfall traffic. We understand that only Aeon Supermarket and Wellness pharmacy are allowed to operate while others remain shut for the period (non-essential tenants, department stores, Daiso). To compare, in FY20 the non-essential stores was closed for 46 days from (18 Mar to 3 May). FY21 on the other hand, is experiencing longer store closure from MCO2.0 (27 days) coupled with the ongoing Phase 1 lockdown 52 days (as at 22 July). We gathered that EMCO areas (Selangor, KL and Seremban) contributed c.40% of the total group revenue. Despite the decline in footfall, Aeon has experienced incremental increase c.20% in the basket size (vs. pre-pandemic) thanks to effective product placement strategy coupled with consumer preference to reduce the frequency of visits.

Rental rebates. Aeon is working closely with tenants on a case-by-case basis. We understand that rental rebates likely will not be as huge at what was provided in April 2020 as Aeon has been assisting in bringing more tenants to its online platform. To recap, Aeon offered a 28-day rental waiver in the period of MCO1.0 to help ease tenants’ financial burden.

myAeon2go key in online expansion. At this juncture, online sales have seen positive traction with 10x climb in sales as compared to 4Q20. Despite this, the online contribution still stands at less than <1%. To spearhead the growth, Aeon will officially launch myAeon2go-Boxed partnership by end of August. The platform is expected to support Aeon’s 4k tenants in its malls throughout the country. Aeon targets its online channels to contribute 15-25% of top line in 5 years’ time.

ESG updates. Aeon has set up a vaccination programme and committed to 50k vaccinations as an incentive to help the country to reach herd immunity. The pilot project started in Aeon Maluri to act as a mobile PPV centre. For this programme, vaccines cost will be borne by the government and Aeon will bear the logistical and administration costs.

Outlook. Compared to the predecessor MCO, we opine the aftermath will be less severe as the group is more equipped having braced through the experience last year. Despite that, we think it may not fully recover to the pre-pandemic level and forecast that stronger recovery will only be seen with successful containment of Covid-19.

Forecast. Unchanged.

Given the lack of positive re-rating catalyst in the near term, we maintain our HOLD call with unchanged TP of RM1.16, based on unchanged 19x FY22 earnings. Despite the various strategies put in place we reckon earnings will be subdued following the longer-than-expected store closures with elevated Covid-19 cases.

Source: Hong Leong Investment Bank Research - 23 Jul 2021