Aeon’s blitzed estimates with FY21 core PAT of RM85.3m (>100% YoY). This came in well above our and consensus expectations, accounting for 171% of full year forecasts. We applaud the group’s continuous effort in recalibrating its cost structure which has borne fruit with EBIT margin expansion for retailing (+7.3ppt YoY) and property management services (+11.1ppt YoY). We increase our FY22/23 earnings forecasts by 7%/16% to account for better margins. Upgrade to BUY from Hold with higher TP of RM1.78 (from RM1.25) after rolling over our valuation year from FY22 to FY23 based on unchanged 19x PE multiple.

Well above estimates. Aeon’s 4Q21 core PAT of RM71.0m (vs core LAT -RM19.8m in 3Q21, YoY: 2.6x) brought FY21’s sum to RM85.3m (>100% YoY). This blitzed estimates at 171% of our and consensus of forecasts. The earnings surprised were attributable to improvement in sales during the quarter coupled with EBITDA margin expansion from the group’s ongoing cost strategy.

Dividend. Declared final dividend of 3.0 sen per share (4Q20: 1.5 sen per share). The entitlement date will be announced in due course. FY21 dividend amounted to 3.0 sen per share (FY20: 1.5 sen per share).

QoQ/YoY. Revenue rebounded by +32% QoQ/ 8% YoY on the back of better sales form retailing segment (+35% QoQ/ 10% YoY). This was attributable to the resumption of economic activities as the country transition to Phase 3/4 during the quarter. Encouragingly, core PAT leaped to RM71.0m (vs core LAT -RM19.8m in 3Q21, YoY: 2.6x) which was the group highest recorded quarterly profit in a decade. The strong growth was on the back of (i) EBITDA margin expansion +9.2ppt QoQ/ 1.9ppt YoY from cost efficiency; (ii) lower effective tax rate (4Q21: 25.0% vs 4Q20: 31.8%) and; (iii) lower interest expense due to decreasing debt.

YTD. Prolong closure of stores due to Phase 1 restrictions and weaker demand during current year’s festivity resulted in retail sales declining -10%. Property management services revenue was lower by -12% due to lower rental income as part of the group strategy to revamp the rent structure to include variable rent structure. Retail business chalked in decline of -10% attributable to the prolonged closure of stores totalling 119 days in FY21. Despite the moderated sales, core PAT leaped >100% to RM85.3m thanks to the group proactive effort in improving its cost structure.

Outlook. Consumption should recover further in FY22, following broader reopening of the economy post pandemic. We applaud the group continuous effort in recalibrating its cost structure which has borne fruit with EBIT margin expansion for retailing (+7.3ppt YoY) and property management services (+11.1ppt YoY). Additionally, Aeon is accelerating its digital shift especially to grow adaptation of myaeon2go amongst its consumers, create Aeon Living Zone to integrate both online and offline shopping engagement experiences, advance health and wellness, as well as to deepen its customer engagement and experience via its Aeon loyalty program and iAeon app.

Forecast. We increase our FY22/23 earnings forecasts by 7%/16% to account for better margin. Upgrade to BUY from Hold with higher TP of RM1.78 (from RM1.25) after rolling over our valuation year from FY22 to FY23 based on unchanged 19x PE multiple. We are confident in the group agile approach in adapting through with changes in marketing mechanics and sustainable cost reduction structures which would provide support to margins moving forward.

Source: Hong Leong Investment Bank Research - 24 Feb 2022