• Maintain NEUTRAL and MYR1.15 TP, 4% upside with c.4% FY25F yield. AEON Co M’s FY23 results are in line. The retailing segment should continue to face pressure from elevated operating costs and soft consumer sentiment in a competitive industry, but this would also be offset by a stronger performance from the property management division. While we see limited downside risks following the stock’s weak 2023 share price performance (-20%), investors should remain NEUTRAL due to a lack of catalysts.

• FY23 core earnings of MYR114.8m (+3.2% YoY) are in line, at 97% and 100% of our and Street full-year estimates. A final DPS of 4 sen (FY22: 4 sen) was declared, which is also within expectations.

• Results review. YoY, FY23 revenue was flattish (-0.3% YoY), with growth in property management (+9.6% YoY) offsetting the dip in retailing (-2% YoY). The property management segment benefited from an improvement in occupancy rates and effective lease renewals, while the retailing business was impacted by softer consumer sentiment and partial store closures for renovation. Despite a 0.8ppts dip in EBIT margin to 7%, this was offset by the normalisation of the effective tax rate or ETR (40.8% from 47.4%) post- expiry of Cukai Makmur. QoQ, 4Q23 revenue rose 8.1% due to favourable seasonality during the year-end festivities. Correspondingly, 4Q23 core earnings surged 136.2% QoQ to MYR32.6m.

• Outlook. Consumer spending should hold up in 1Q24F, given the Lunar New Year and earlier timing of Aidil Fitri (10 April). Management aims to continue its promotional efforts and mall events to attract footfall and capitalise on the festive spending. While there are no plans for new mall launches, management will focus on rejuvenating and refurbishing its current malls to enhance the overall shopping experience and stay competitive. Beyond the immediate term, management is cautious of the upcoming implementation of subsidy rationalisation and higher consumption taxes, which could impact sales volumes – especially considering the current competitive industry landscape. Meanwhile, operating costs should remain elevated, in view of the changes in the imbalance cost pass-through or ICPT rates (implying a hike in electricity tariffs) and the introduction of green electricity tariffs (surcharges on non-green sources) in August.

• Forecast and ratings. We tweak FY24-25F earnings post updating our numbers and model, following the release of AEON’s FY23 results. We also introduce FY26 forecasts (earnings up 5.7% YoY) in this report. We maintain our DCF-derived TP at MYR1.15, which includes a 6% ESG premium over its intrinsic value. Our TP implies 13.3x FY24F P/E (-1SD from its 5-year mean).

• Key upside risks include stronger-than-expected consumer sentiment and higher-than-expected opex. The opposite of such circumstances would constitute downside risks.

Source: RHB Research - 26 Feb 2024