Aeon’s registered 4Q22 core PAT of RM24.9m (+128% QoQ; -65% YoY) which yielded FY22 sum of RM111.2m (+30% YoY). This lukewarm results came in below our and consensus expectations, accounting for 86%/89% of forecasts. Management foresees a challenging FY23 as consumers continues to remain cautious in spending amidst ongoing inflationary pressure alongside projected economic slowdown. We cut our FY23 earnings forecasts by -10%. After earnings adjustment, our TP decreases to RM1.33 (from RM1.48) based on unchanged 15x PE of FY23. Maintain HOLD.

Underperformed. Aeon’s registered 4Q22 core PAT of RM24.9m (+128% QoQ; -65% YoY) which yielded FY22 sum of RM111.2m (+30% YoY). This only made up 86%/89% of our and consensus forecasts. The earnings disappointment was attributable to margin compression coupled with higher-than-expected effective tax rate. Deemed as a seasonally strong quarter, 4Q historically accounted for 35-45% of full year earnings while 4Q22 only account for 23% of FY22 earnings.

Dividend. Declared final dividend of 4.0 sen per share (4Q21: 3.0 sen per share). The entitlement date will be announced in due course. FY22 dividend amounted to 4.0 sen per share (FY21: 3.0 sen per share).

QoQ. Revenue inched up by 8% to RM1.1bn on the back of better sales from both retailing segment (+9%) and property management services PMS (+2%). Retailing segment benefited from higher consumer spending on festive and year-end sales. As for PMS, the marginal increase was contributed mainly by higher car park and temporary space rentals. Encouragingly, core PAT leaped by +128% to RM24.9m on the back of (i) EBIT margin expansion +2.1ppt from higher retailing revenue; and (ii) lower interest expense due to decreasing debt.

YoY. Top line increased by 7% contributed by better revenue from both retailing segment (+6%) and PMS (15%). Retailing segment was bolstered by the economic reopening coupled with the opening of national borders and early festivities spending. PMS growth was driven by improvement in occupancy rate in line with consumers’ sentiment in returning to physical malls. On the contrary, bottom line plunged by -65% due to (i) EBITDA margin erosion by 7.8ppt with increase in promotional activities and maintenance costs; and (ii) higher effective tax rate of 45.4% (vs 4Q21: 25.0%).

YTD. Sales improvement of 14% was recorded thanks to better contribution from both segments. Retailing registered growth of 14% from increase in softline and hardline sales, attributed largely to economic reopening coupled with opening of national borders. PMS grew by 16% owning to higher sales commission and temporary space rental received in line with consumers’ sentiment in returning to physical malls. Core PAT in turn registered +31% growth to RM111.2m.

Outlook. Despite the QoQ improvement, we are discouraged by the underwhelming growth registered taking cue from the fact that 4Q historically dubbed as the strongest quarter. Management foresees a challenging FY23 as consumers continue to remain cautious in spending amidst ongoing inflationary pressure alongside projected economic slowdown. The group reiterates its effort in leveraging its ecosystem in partnering with tenant partners, suppliers and Aeon group of companies to optimize the value in consumer spending.

Forecast. We cut our FY23 earnings forecasts by -10% to account for lower margin. Maintain HOLD. After earnings adjustment, our TP decreases to RM1.33 (from RM1.48) based on unchanged 15x PE of FY23. While we are confident with the sales trajectory, we remain cautious on the inflationary environment coupled with the anti inflationary campaign which could pose margin shrinkage risk.

Source: Hong Leong Investment Bank Research - 23 Feb 2023