• 2Q20 earnings fell into the red (core loss of RM9.6m) on the back of a - 13.2% yoy decline in revenue to RM954.3m, amidst an MCO-hit quarter.
• On a YTD basis, Aeon registered a core net loss of RM0.9m, which was within our expectations but below that of consensus full-year forecast.
• No major changes to our earnings estimates. We expect sequential improvement off 1H’s low base, underpinned by recovery in both of the group’s core segments. Maintain BUY with an unchanged TP of RM1.00.

6M20 Fell Into a Core Net Loss of RM0.9m; But Within Our Expectations

Aeon posted a 6M20 revenue of RM2.15bn (-7% yoy), attributed to lower turnover from retail and property management segments. Retail segment was impacted by lower contribution from general merchandise and Daiso stores which were temporarily closed during MCO. Property management, on the other hand, was faced with rental rebates, lower sales commission and absence of temporary space rental. In tandem with an overall margin dip, Aeon registered a 6M20 core net loss of RM0.9m. The result was broadly within our expectation (but below that of consensus) as we anticipated sequential improvement post a challenging quarter and given that 1H is also seasonally softer.

Sequential Improvement Should Follow

On a qoq basis, revenue declined -19.9% to RM954.3m, while bottom-line earnings fell into the red at RM9.6m (vs profit of RM8.7m in 1Q20). Notwithstanding the challenging lockdown-hit quarter, we expect a gradual recovery to transpire off the trough at both of Aeon’s core segments. We gather that retail business has seen an encouraging pick-up post-CMCO, whilst we foresee rental rebates to gradually dissipate in the subsequent quarters. Meantime, to remain resilient and sustainable, the group has embarked on various digitalisation measures as well as implementing certain processes at both online and store level.

Maintain BUY

As we deem the 6M20 results in line, we made no major changes to our earnings forecasts. Our TP remains unchanged at RM1.00, based on 15.5x 2021E EPS. Assuming no major second Covid-19 outbreak in the country, we expect sequential earnings improvement from a low base to materialise, in both of Aeon’s retail and property management segments. Reiterate our BUY call, as risk to reward remains favourable.

Key Risks

Downside risks to our call include: i) a major second Covid-19 outbreak / imposition of MCO, ii) sharp fall in retail traffic, and iii) further deterioration in macro conditions and consumer sentiment.

Source: Affin Hwang Research - 28 Aug 2020