• Maintain NEUTRAL and MYR1.51 TP, implying 4% upside, c.3% yield. 1H22 earnings exceeded expectations on the back of better-than-expected 2Q22 performance, underpinned by elements of revenge-spending amid Aidil Fitri festivities and the broader economic reopening. We remain cautious on both business divisions, with the retail supply glut expected to loom over the property management division – exerting pressure on rental and occupancy rates – while the risk of margin shrinkage within the retail segment is apparent, in the face of an inflationary environment.

• Above estimates. 2Q22 core profit of MYR47.3m (+68.3% QoQ, >100% YoY) led to 1H22 core profit of MYR75.4m (>100% YoY), which exceeded our and Street’s estimates at c.71% of full-year projections. 2Q22 revenue saw robust QoQ and YoY growth, boosted by the retailing segment (+9.4% QoQ, +28% YoY), which benefitted from the broader economic reopening coinciding with Aidil Fitri festivities during the quarter – ultimately leading to segmental profit surging >500% YoY from a low base, complemented by successful opex optimisation efforts. Similarly, 1H22 revenue was up 11.1% YoY, and earnings more than doubled from the retailing segment’s recovery (+120.7% YoY), due to the aforementioned reasons. Net margins held up, growing 1.5ppts QoQ to 4.3% in 2Q22 and 1.8ppts YoY? to 3.6% for 1H22 – likely due to a favourable product mix during the period, amid strong sales.

• Outlook. We believe that revenge-spending played a major role in inflating this quarter’s numbers from a low base, as this year’s Aidil Fitri festivities coincided with freer movement upon Malaysia’s transition to endemicity. Hence, a normalisation in earnings is expected in the coming quarters, and we elect to stay cautious on the on-and-off price guarantee campaigns in the face of the inflationary environment, which could cause margin shrinkage. We are still wary of its property management division, as the supply glut in the retail sphere and rise in convenient shopping alternatives are likely to exert pressure on rental and occupancy rates. That said, its asset-heavy business model may work unfavourably against this backdrop, resulting in diminishing asset yields. Elsewhere, while the enhancement of its e-commerce platform, myaeon2go, is a step in the right direction towards the omnichannel strategy, online sales are likely to take time to gain traction.

• Still NEUTRAL. We raise FY22F earnings by 14% to take into account the strong 2Q22, as results were above expectations. FY23-24F earnings tweaks are negligible at less than 5%. Updating our cost of equity assumption, our DCF-derived TP is maintained at MYR1.51, and includes a 6% ESG premium, based on its 3.3 score, which is above the country median. Our TP implies a 16x FY23F P/E, which is at around -0.5SD from its 5-year historical mean.

• Risks to our recommendation include stronger/weaker-than-expected consumer sentiment and higher/lower-than-expected opex.

Source: RHB Research - 24 Aug 2022