KEY INVESTMENT HIGHLIGHTS

• Within expectations
• Muted 2QFY24 sales amid only Raya festive promotion and traffic
• Earnings forecast; Maintained
• Maintain BUY call with a higher TP of RM1.67 (from RM1.60)

Within expectations. Aeon Co. ("Aeon") 2QFY24 core PATANCI came in slightly lower at RM26.9m after excluding a one-time item of -RM0.8m.

This brought its 1HFY24 core PATANCI to RM84.8m (+21.7%yoy), while, this was largely considered within our and consensus estimates, making up about 61.5% and 65.9% of full-year estimates, considering the weakness in 3Q later part in 2HFY24 due to absence of festivities in the period. No dividend was declared, as expected, since the group typically declares in the 4Q.

Muted 2QFY24 revenue amidst only Raya festive celebration.

Aeon reported relatively unchanged revenue of RM1.0b (-12.5%qoq, - 1.2%yoy) in 2QFY24. This was primarily due to a slight slowdown in the retail business subsegment, which declined by -3.1%yoy, partly due to the timing of the festive season. However, this impact was cushioned by the contribution from Property management services (PMS) revenue, which increased +8.9%yoy, thanks to improve in occupancy rates and effective rental renewals.

Robust operating profit margin at 20% in 2QFY24. Notably, the group's operating profit grew by +22.0%yoy to RM202.0m was mainly due contributed by higher revenue and disciplined cost management (lower staff).

Earnings forecast. Maintained.

Outlook. We remain optimistic on Aeon Co's FY24-25F outlook underpinned by: i) solid out-of-home spending thanks to the stable job market and decent income prospects - progressive wage policies for public servants, ii) various government cash assistance, and EPF Account 3 withdrawal that could support the spending for value staple products at Aeon Co, and iii) stable occupancy rate and positive rental renewal for the PMS segment thanks to the return of consumers to shop physically.

Recommendation. We maintain our BUY with a higher TP of RM1.67 (from RM1.60). Our revised TP is based on a revised PER of 15.5x (slightly above 5y historical average mean of 15.3x) pegging to an unchanged FY25F EPS of 10.8 sen. Downside risk for Aeon is weaker-than- expected consumer sentiment due to the implementation of fiscal policies in 2H24 (including HVG tax and rationalization of fuel subsidy) that reduces spending at retail and tenant stores, hence lowering the revenue.

Source: MIDF Research - 30 Aug 2024