AEON’s 1QFY23 results met expectations as turnover rose 11%  driven by Chinese New Year (CNY) and back-to-school shopping,  as well as from a low base a year ago. AEON will continue to: (i)  bring in well-established brands and retain tenants to improve the foot traffic in its stores and malls, (ii) collaborate with suppliers to contain cost, and (iii) focus on its digital transformation. We maintain our forecasts, TP of RM1.80 and OUTPERFORM call.

Within expectations. 1QFY23 net profit came within expectations at  30% and 24% of our full-year forecast and the full-year consensus estimate, respectively.

YoY, 1QFY23 revenue rose 11%, driven by CNY and back-to-school shopping, as well as from a low base a year ago. Also helping, were  higher rental incomes on improved occupancy rates as businesses normalised. Its net profit rose by a larger 36% thanks to better cost absorption on a higher revenue and lower interest expenses.

Outlook. We believe AEON’s top line will continue to be driven by resilient consumer spending backed by a stable job market,  government subsidies and financial assistance to the low-income  group. Encouragingly, there has also been signs of disinflation globally including in Malaysia. More specifically to AEON, it is bringing in well-established brands, expanding its fresh food and private-label products and retaining tenants to improve the foot traffic in its stores and malls  to boost sales. In terms of cost cutting initiatives, AEON is collaborating with its suppliers as well as increasing the number of self-checkout terminals at its speciality stores such as Wellness and Daiso.

Forecasts. Maintained.

We maintain our TP at RM1.80 based on 18x FY24F PER, at a  premium to the sector’s average forward PER of 16x to reflect AEON’s strong brand and digital initiatives. There is no adjustment to our TP  based on ESG given a 3-star rating as appraised by us (see Page 4).

We like AEON as: (i) It is benefitting from the return of shopping-in-person (vs. online), resurgence of shopping in malls (vs. neighbourhood grocers) and the return of office crowd (vs. working from home), (ii) its customer base that is skewed towards the M40  group whose spending power is less impacted by high inflation, and (iii) its digital transformation, particularly, the introduction of self-checkout for customers, that will result in cost savings and mitigate labour shortages. Maintain OUTPERFORM.

Risks to our call include: (i) competition from existing and new players, (ii) sustained high inflation eroding consumer spending power, and (iii) the long-term trend towards online shopping from in-person shopping.

Source: Kenanga Research - 19 May 2023