AEON : Indicators are on the mend

Undemanding valuations + strong earnings trajectory. AEON remains one of HLIB’s top picks in the consumer space with a TP of RM1.82. We are confident in its sales trajectory, capitalising from recent government initiatives, such as the third EPF account and the civil servants' pay hike. Notably, we project AEON’s earnings to grow by 30.7% and 13.7% in FY24f and FY25f, significantly higher than its pre-pandemic three-year average of 6%. Additionally, AEON is currently trading at an undemanding FY25f P/E of 11.3x (43% discount against its 5-year mean of 20.9x). Given this attractive valuation, coupled with a promising earnings outlook, we recommend a buy-on-weakness strategy for AEON to capitalize on the recovery in the consumer sector.

Bright outlook in PMS segment. The PMS segment has shown strong performance, with Aeon’s property occupancy rate rising from 91.6% to 93.6% in 1Q24. We expect the PMS segment to remain healthy, with a target of increasing the occupancy rate to 94% by year-end alongside better rental renewal rates. Looking ahead, the group's initiative to refurbish four existing malls — Aeon IOI Bandar Puchong, Aeon Ipoh Station 18, Aeon Tebrau City, and Aeon Bukit Indah — is expected to boost revenue from 3Q24 onwards. This is evident from the 20% YoY revenue increase generated by the two recently refurbished malls, Aeon Ayer Keroh and Aeon Cheras Selatan. Furthermore, the upcoming Aeon KL Midtown mall, slated for FY25, is anticipated to serve as another long-term catalyst for the group.

Retail segment. While the retail segment is expected to record weaker performance in 2Q24 post-festive season, we see the government's announcements regarding the EPF Account 3 and civil servant pay hike (effective December 2024) as long-term drivers for this segment. Notably, BMI, a Fitch Solutions company, has forecasted Malaysia’s household spending to grow by 5% YoY in 2024, auguring well for AEON.

Indicators on the mend. AEON is currently trading within the support range of the EMA20 and EMA50, with indicators showing an upward bias. A successful breakout above RM1.42 will signal the start of a new uptrend, potentially driving the share price towards RM1.48-1.55-1.67 region. Cut loss at RM1.27.

Collection range: RM1.30-1.35-1.37

Upside targets: RM1.48-1.55-1.67

Cut loss: RM1.27

Source: Hong Leong Investment Bank Research - 30 Jul 2024