• Maintain NEUTRAL, new MYR1.51 TP from MYR1.41, implying 9% downside, with c.2% FY22F yield. 1Q22 earnings met expectations, with the normalisation in foot traffic leading to improved YoY performance – particularly for the property management segment – aided by successful cost-optimisation efforts. We believe that the retail supply glut will result in persistent occupancy and rental pressures, while its digitisation efforts may also take time to gain traction, with online sales contributions kicking in substantially only in the long term.

• Results met expectations. AEON Co M reported 1Q22 core profit of MYR28.1m (-60.4% QoQ, +27.5% YoY), at 26.5 and 24.5% of our and consensus’ full-year estimates – in line with expectations. 1Q22 revenue saw flattish growth both on a QoQ and YoY basis, supported by the property management segment (+4.8% QoQ, +7.4% YoY), which benefitted from higher sales commissions, as a result of foot traffic normalisation during the quarter. YoY, 1Q22 earnings grew by 27.5%, with both retailing and property management segments reporting robust sales growth of 20.6% and 35.6% respectively, aided by successful optimisation efforts on the opex front. Nevertheless, on a QoQ basis, lower trade bonus and incentive contributions, higher QoQ opex and higher tax rates led to a 60.4% drop in earnings, with a margin shrinkage of 4.3ppts on a blended basis.

• Outlook. While the enhancement of its e-commerce platform, myaeon2go, is a step in the right direction towards its omnichannel and online-merge- offline (OMO) strategy, online sales contributions are likely to remain immaterial for the time being, and will take time to gain traction. For property management, despite efforts to renovate older malls (starting with Alpha Angle) for mass appeal, we expect pressure on rental and occupancy rates to persist, in light of the mushrooming of convenient shopping alternatives. That said, its asset-heavy business model may work unfavourably within the oversaturated retail landscape, resulting in diminishing asset yields. For the retailing segment, we stay cautious of the on-and-off price guarantee campaigns in the coming quarters (highlighted by management), which could exert pressure on margins (-3.2ppts QoQ for the retailing segment).

• Maintain NEUTRAL. We make no changes to our FY22-24 earnings forecasts at this juncture, pending further clarity on its prospects and cost control measures during the results briefing on Friday. Our DCF-derived TP is lifted to MYR1.51 after updating our cost of equity assumptions (now at 8.7% from 9.4%, with a renewed Beta input post housekeeping) and includes a 6% ESG premium, considering its score of 3.3 which is above the country median. Our TP implies a 19x FY22F P/E, which is at around - 0.5SD from its 5-year historical mean.

Source: RHB Research - 19 May 2022