Review

• Aeon’s FY23 core earnings of RM134.4mn (-3.5% YoY) came in above our and consensus expectations at 117% and 114% respectively. The earnings beat was driven by better performance of its property management segment.

• The board declared a final single-tier dividend of 4.0sen/share for FY23, consistent with FY22.

• YoY, FY23 revenue remained flat at RM4.1bn (-0.3% YoY), attributed to the partially closure of Aeon Ayer Keroh Mall and Cheras Selatan Mall. However, this was offset by the improved performance of its property management segment (QoQ +5.0% & YoY +9.6%). Meanwhile, EBIT and PBT declined 10.4% and 8.3% respectively, dragged by lower sales in the retail segment and surge in operating costs.

• QoQ, 4QFY23 revenue increased to RM1.0bn (+8.1% QoQ), driven by a higher occupancy rate, effective rental renewals, and increased sales during year-end and festive seasons. Net profit stood at RM32.6mn (+136.2% QoQ) thanks to revenue growth in both retail and property segment and effective cost management in this quarter.

• Retail Segment. FY23 EBIT declined by 69.3% YoY to RM68.9mn while revenue experienced a marginal drop of 2.0% YoY to RM3.5bn. We believe this was mainly due to higher OPEX coupled with sales disruptions during the closure of Aeon Ayer Keroh Mall and Cheras Selatan Mall.

• Property Management Segment. The segmental turnover and EBIT rose by 9.6% and 16.9% YoY, respectively, thanks to higher occupancy rate and positive rental reversion rate.

Impact

• No changes on our FY24-25 earnings projections and we introduce FY26 earnings forecast of RM180.5mn.

Outlook

• 2024 outlook will be challenging due to following factors: i) Continuous weakening in domestic currency, which could elevate cost pressures, ii) Uncertainty of subsidy rationalisation and its impact on spending power, and iii) 2% increase in Sales and Services Tax, which would further dampen consumer spendings.

Valuation

• Maintain Buy on AEON with unchanged target price of RM1.57/share based on DDM valuation approach (k: 7.1%; g: 3.0%).

Source: TA Research - 26 Feb 2024