Aeon’s 3Q21 core LAT of -RM19.8m (vs core PAT 2Q21: RM12.0m in 2Q21, 3Q20: RM16.4m) brought 9M21’s sum to RM14.3m (+0.2%). This is below ours and consensus expectation, at 21% and 17% of forecasts respectively. We lower our FY21/22/23 earnings forecasts by 27%/11%/10% to account for lower sales and EBIT margin compression. Reiterate HOLD, with lower TP RM1.25 (from RM1.39) based on unchanged 19x PE multiple of FY22 EPS. Despite the short term uncertainties, we reckon Aeon will be able to brace through another storm with their clear strategy to chart for recovery.

Below expectations. Aeon’s 3Q21 core LAT of -RM19.8m (vs core PAT 2Q21: RM12.0m in 2Q21, 3Q20: RM16.4m) brought 9M21’s sum to RM14.3m (+0.2%). This is below ours and consensus expectation, at 21% and 17% of forecasts respectively. Note that 4Q is a seasonally strong quarter for Aeon, typically accounting for 35-45% of full year earnings. The shortfall in earnings was due to slower-than-expected recovery from both retail and property management services from Covid-19.

Dividend. None declared (3Q20: None). 9M21: None (9M20: None). Aeon typically declares dividend once a year, in Apr/May of the following year.

QoQ/YoY. Revenue declined by -14.1% QoQ/ 24.2% YoY dragged by both retailing (-24.3% YoY) and property management segment PMS (-23.3%). This was attributable to stricter lockdowns in the quarter which restricted both segments from shorter operating hours and store closures due to Covid-19 sanitisation. Subsequently in line with the weak revenue, core LAT of -RM19.8m was recorded (vs core PAT of RM12.0m in 2Q21).

YTD. Prolong closure of stores due to Phase 1 restrictions and weaker demand during current year’s festivity resulted in retail sales declining -15.9%. PMS sales were lower by -15.6% due to lower rent commission as most tenants were struggling with limited sales from store closure pursuant to the various restrictions directive. Despite the weak sales, core PAT was flat at RM14.3m (+0.2%) thanks to the group proactive effort in improving its cost structure.

Outlook. With the reopening measures by the government coupled with the forthcoming year end festivities, we opine that recovery in foot traffic will continue in an upward trend. Consumption should recover further in FY22, following broader reopening of the economy post pandemic. Having said that, we opine that Aeon’s valuation has largely price in the recovery picture and do not see compelling catalyst to prompt an upgrade at this juncture.

Forecast. We lower our FY21/22/23 earnings forecasts by 27%/11%/10% to account for lower sales and EBIT margin compression. Reiterate HOLD, with lower TP RM1.25 (from RM1.39) based on unchanged 19x PE multiple on FY22 EPS. Despite the short term uncertainties, we reckon Aeon will be able to brace through another storm with their clear strategy to chart for recovery.

Source: Hong Leong Investment Bank Research - 25 Nov 2021