Aeon beat estimates with 1H22 core PAT of RM75.4m (YoY: 2.2x). This came in above our and consensus expectations at 77% and 71% of full year forecasts, respectively. Overall sales were supported by the reopening of the economy coupled with the Hari Raya and Ramadhan festive season. Encouragingly retail EBIT margin recorded an expansion of 6.7ppt YoY. Despite the higher revenue from PMS segment, PMS EBIT margin was lower by -6.9ppt YoY. Reiterate HOLD, with unchanged TP of RM1.40 based on 15x PE multiple of FY23 EPS. While we are confident with the recovery in sales aided by economic reopening, we remain cautious on the inflationary environment coupled with the price lock campaign which could pose a margin shrinkage risk.

Above expectations. Aeon chalked in 2Q22 revenue of RM1.1bn (QoQ: +9.4%, YoY: +25.3%) and core PAT of RM47.3m (QoQ: +68.3%, YoY: 3.9x). This brought 1H22’s sum to RM75.4m (YoY: 2.2x) which was well above our/consensus expectations making up 77%/71% of full year forecasts. The deviation was on the back of better than-expected margin.

Dividend. None declared (2Q21: None). 1H22: None (1H21: None).

QoQ. Revenue inched up by 9.4% to RM1.1bn contributed by better sales from retailing (+9.4%) and property management services (+8.9%). Overall sales in retail was supported by the opening of national borders coupled with Ramadhan and Hari Raya festivities. As for PMS, there was higher sales commission and rental income from tenants following consumers’ tendency in returning to physical malls. Core PAT expended further by +68.3% to RM47.3m attributable to expansion in EBITDA margin by +1.9ppt.

YoY/YTD. Top line grew healthily by 25.3% YoY/11.1% YTD to RM2.1bn. Retailing segment registered bigger expansion of 28.0% YoY on the back of increase in sales in softline and hardline with economic and borders reopening. PMS segment revenue rose by 11.3% YoY thanks to the higher sales commission and rental income form tenants following consumers’ tendency in returning to physical malls. Despite that, PMS EBIT margin contracted by -6.9% YoY. Encouragingly, bottom line outperformed recording RM75.4m (+121%) in line with (i) increased in revenue; (ii) expansion in EBITDA margin by 0.8ppt; and (ii) lower effective tax rate by 4.0ppt (1H22: 48.7% vs 1H21: 52.8%). Recall that 1H21 was impacted by the continual closure of non essential departments pursuant to the restrictions. 1H21 experienced store closure of 57 days from MCO3.0/Phase 1 restrictions.

Outlook. We applaud the group’s performance and are encouraged by the retail segment recovery. Retail EBIT margin chalked in expansion by 3.9ppt YTD supported by the festivities and economic reopening. Despite that, PMS EBIT margin contracted by -6.9%. To capture the consumer spending in the coming months, the group has laid out strategy to (i) accelerate and evolve its digital shift especially to grow adoption of myaeon2go; (ii) integrating both online and offline shopping engagements with Aeon Living Zone; (iii) ramping up offering related to health and wellness; and (iv) deepening its customer experience via Aeon loyalty program and iAeon app.

Forecast. Unchanged pending analyst briefing slated today.

Reiterate HOLD, TP RM1.40. While we are confident with the recovery in sales aided by economic reopening, we remain cautious on the inflationary environment coupled with the price lock campaign which could pose margin shrinkage risk.

Source: Hong Leong Investment Bank Research - 24 Aug 2022