Recovery from the pandemic is reflected in its 1QFY22 earnings, which came within our/consensus estimates. QoQ, PATAMI declined due to higher opex. We expect sustained earnings growth due to strong pent-up shopping demand and increasing footfall at its malls. No changes to FY22E/FY23E earnings. We maintain our OUTPERFORM rating with new TP of RM1.85 (from RM1.70) at 21x PER on FY23E EPS of 8.8 sen.

In line. 1QFY22 PATAMI of RM28.1m is in line with our/consensus estimate, at 25% each of respective full-year forecast. No dividend, as expected.

YoY, revenue declined by 1.2%, mainly due to lower revenue in the retail business segment (-2.5%), cushioned by higher revenue from the property management segment (+7.4%). The decline in the retail business segment is likely due to lower supermarket expenses. EBITDA margin remain at 19%, and EBIT margin improved by 1.2ppt on better product mix and disciplined cost management. All in, PATAMI of RM28.1m (+27.5%) was recorded on lower finance cost.

QoQ, revenue improved slightly by 1% to RM1b on contribution from both segments, with flattish growth in the retail business segment (+0.4%) driven by higher consumer spending during the festive season. In the property management segment, revenue increased by 4.7% on the back of higher sales commission and rental income, helped by the recovery of consumer sentiment. EBIT margin fell by 4.7ppt due to seasonal year-end annual rebate recognition. All in, the net result was 1QFY22 PATAMI declining by 60.4% on higher ETR of 48.7% (vs. 4QFY22: 25%).

Outlook. We expect earnings recovery to sustain on the reopened borders and activities in the subsequent quarters, underpinned by the pent-up demand and increased retail footfall from incoming festivities. We believe that management will continue to improve its digital transformation to secure its online presence. The group launched the #AEONHargaJamin campaign to protect and give price guarantees to its customers against inflation pressure, and we believe the campaign will likely to continue in June 2022 after the first batch of campaign ends in May 2022.

No changes to the FY22E/FY23E earnings.

Maintain OUTPERFORM with new TP of RM1.85 (from RM1.70) as we rollover our valuation to FY23E PER of 21x, implying 0.5SD below its 5-years mean. Given its slower recovery in the retail business segment, we feel this is justified, as a shift in consumers’ behaviour would likely affect sales.

Risks to our call include: (i) lower-than-expected sales, and (ii) higher-than-expected operating expenses, iii) new variants of the pandemic.

Source: Kenanga Research - 19 May 2022