Stock Highlights

Successful mall rejuvenation initiatives. One of the main bright spots for Aeon this year has been the stellar performance of its property management segment (PMS), which recorded a 10% YoY growth in 9M2024. This reflects the successful initiatives by management in refurbishing its mall and optimising the tenant mix. As a result, occupancy rates have improved to 95.1% in 9M24 (vs. 91.5% a year ago), while management is expecting to hit a rental renewal rate of 90% by end-2024. Recently renovated locations, such as Aeon Bandar Puchong and Aeon Cheras Selatan, have shown revenue increases of +20% YoY, underscoring the effectiveness of these upgrades.

Retail sales to stay resilient. Aeon's retail segment remained resilient with 9M24 revenue growing 1.7% YoY. However, the recent shift in consumer spending patterns toward essentials over discretionary items (such as electronics and home products) weighed on margins in 3Q24. Looking ahead, we expect improvement in its retail segment in 2025, supported by resilient consumer demand, civil servant pay hikes, and the planned increase in minimum wages. Additionally, we believe any pressure on margins could be managed through better operating efficiencies.

Valuation can still play catch-up. The stock is already up by an impressive +40% YTD, having re-rated on the back of positive earnings revision. Even so, we think there is still room for Aeon's valuation to play catch-up further, which is currently trading at just 13.1x PE to consensus FY25 earnings forecast (vs. 16-34x forward PE for other listed peers such as Padini, MrDIY, 99 Speedmart).

Riding the uptrend with momentum. The stock has been trading positively since early 2024, climbing from RM1.10 to RM1.61 while maintaining an uptrend channel above the 200-day EMA. Recently, it broke out of a triangle pattern within the channel and is currently making a pullback, offering an ideal entry range between RM1.45 and RM1.47. The first target for this setup is RM1.55, with a secondary target at RM1.65. However, a break below RM1.37 would invalidate the uptrend structure and potentially signal the beginning of a downward trend.

Source: Mercury Securities Research - 13 Dec 2024