• Aeon’s 4Q20 PBT improved 11.4% qoq to RM39.8m due to better merchandise gross margin and stringent cost control measures
• FY20: core net profit declined by 58.6% yoy to RM45.4m due to the impact of Covid-19 – below our and consensus estimates
• In light of the renewed MCO, we revise our 2021/22E earnings by -16.2%/+4.4%. Maintain a BUY rating with a higher TP of RM1.20 based on a 3-year mean PER of 24x FY21EPS

Stringent Cost Control Measures Lifted 4Q20 Earnings

Aeon’s 4Q20 revenue declined by 7.4% qoq to RM916.5m attributable to the reintroduction of the Conditional Movement Control Order (CMCO) in major states from 14 Oct due to the rising number of Covid-19 cases, affecting footfall in Aeon’s malls and outlets. Nevertheless, Aeon’s 4Q20 PBT came in higher by 11.4% qoq to RM39.8m as a result of improvement in merchandise gross margin, changes in marketing mechanics and stringent cost control measures.

2020 Core Net Profit at RM45.4m (58.6% Yoy) – Below Expectations

On a full-year basis, Aeon’s FY20 revenue declined 10.7% yoy to RM4.05bn. The drop in revenue was mainly due to the lower sales recorded for both its operating segments. The retail segment saw a decline of 10.1% yoy to RM3.4bn due to lower sales in its hard line and soft line sub-segments due to lower footfall as a result of MCO. Furthermore, Aeon’s general merchandise (“GMS”) and specialty stores were also closed for almost 2 months during the year due to the MCO. This lower revenue was, however, offset by higher revenue from the food segment. Aeon’s property management segment saw a lower contribution of RM606.6m (-14.1%yoy) from lower occupancy rates and reduced rental commission receivables as a result of subdued footfall at shopping malls. Income from temporary space rental was also affected by the absence of events and activities. Excluding one-offs, Aeon’s FY20 core net profit came in at RM45.4m (-58.6%yoy) – below our and consensus estimates due to a higher-than-expected tax rate.

Maintain BUY With An Higher TP of RM1.29

Taking into account the renewed MCO, we cut the 2021E EPS by 16.2%. With the national vaccine programme rolling out, we remain confident in Aeon’s medium to longterm prospects and the company’s efforts to re-strategize its operational, merchandising, and marketing strategies to align with consumers’ changing shopping habits. We raise the 2022E EPS by 4.4% as we are optimistic on Aeon’s effort to introduce better-margin specialty stores in the medium term. We reiterate our BUY rating with a higher TP of RM1.20 based on a 3-year mean PER of 24x on the 2021EPS (from 15.5x previously).

Source: Affin Hwang Research - 25 Feb 2021