Aeon shared that relaxation of containment measures since 16 Sept 2021 have helped to recover retail sales in 4Q21. We opine that with discussion of border re-opening gaining traction for the past week, this would provide further boost for the group sales recovery especially in the southern region. Encouragingly, the group’s acceleration in online adaptation has borne fruit with myaeon2go recording 592% revenue increase YoY. As for PMS, the quarter saw a record EBIT margin of 45% (+11.1ppt YoY) with its adaptation of commission rental structure as opposed to the traditional fixed rental structure. Reiterate BUY, with unchanged TP of RM1.78 based on 19x PE multiple of FY22 EPS.

Below Are Key Takeaways From Aeon’s 4Q21 Analyst’s Briefing.

Retail recovery. Aeon shared that relaxation of containment measures since 16 Sept 2021 have helped to recover retail sales in 4Q21. Recall that revenue rebounded by +32% QoQ/ 8% YoY on the back of better sales from retailing segment (+35% QoQ/ 10% YoY). Despite the improvement in sales recorded, it was still registering 20% below pre-pandemic levels of FY19. This was contributed by the 119 days of closure for non-essential items coupled with the border restrictions that remains shut. Note that southern region made up c.15% of the group top line which was mainly contributed from customers visiting from Singapore. We opine that with discussions of border re-opening gaining tractions for the past week, this would provide further boost for the group sales recovery.

Continuing on tried-and-tested strategy. Despite muted top line YTD (-10%), Aeon has successfully defended its bottom line with a leaner cost structure. We gather that the group has managed to slashed its selling, general and administrative (SG&A) expenses through (i) managing non-trade contracts by reviewing its housekeeping, security and maintenance cost; and (ii) adopting leaner marketing mechanics. Encouragingly, the group’s acceleration for online adaptation has borne fruit with myaeon2go recording 592% revenue increase YoY. Despite making up a small fraction of overall sales, we opine that this strategy would enable the group to continue servicing its customers better in providing complimentary options for both offline and online channel. We also applaud the group’s initiative in increasing the minimum wage from RM1,200 to RM1,500 per month, ahead of the recommended timeline by the government as a reflection of its commitment in prioritising the welfare of its employees. We gather that the financial impact is minimal with an expected increase of 0.5% of operating expenses.

Property management segment (PMS). The quarter saw a record EBIT margin of 45% (+11.1ppt YoY) with its adaptation of commission rental structure as opposed to the traditional fixed rental structure. With this flexibility, Aeon managed to retain more tenants and have a stable occupancy rate for its malls amidst the challenging environment. The income composition for variable rent stands at 16.1% (vs 4Q20: 7.4%).

New Alpha Angel. As an added strategy the group is in the midst of launching its Alpha Angel Aeon Mall in Wangsa Maju. This pilot project will lead the green initiatives in solar panel, vertical farming, waste recycling and carrying exclusive private label products. Reiterate BUY, with unchanged TP RM1.78 based on 19x PE multiple of FY22 EPS. 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 - 25 Feb 2022