We came away from the analyst briefing yesterday with the following key takeaways:

1. Expecting margin improvement in FY24

2. Resilient growth in property management segment (PMS)

3. Ongoing marketing activities to boost footfalls.

We maintain our FY24-26 earnings forecast. Reiterate Buy with an unchanged target price of RM1.57/share, based on DDM valuation (k: 7.1%; g: 3.0%).

Expecting margin improvement in FY24

Management is confident that margins will improve in FY24, driven mainly by effective cost management such as: i) initiatives on digitalisation via installation of self-checkout payment machines, which will reduce staff expenses and increase productivity of the stores, ii) reduction in the hiring of casual and contract staff during festive seasons and iii) optimisation of utility expenses through energy control measures (monitoring the mall’s temperature, implementing energy savings measures for unused lifts and escalators). As such, Aeon expects its retail EBIT margin to improve by 0.5 pts to 2.5% in FY24 (vs. 2.0% in FY23).

More importantly, the group aims to improve its top-line by enhancing its product assortment and promoting its private brand, TOPVALU which offers higher margins. In our forecasts, we expect sales to grow by 7.2% to RM4.4bn in FY24, boosted by SSG growth of 3.7% and expansion (Setia City Aeon store, 3 wellness and 3 Daiso outlets)

Resilient growth in property management segment (PMS)

We gather that FY23 occupancy rate stood at 93% while rental reversion rate was at +9%. Moving forward, the group targets to improve its occupancy rate to 95% (+2 pts) and sustain the rental reversion rate of +9% for FY24. The growth on PMS will be mainly driven by i) securing commercial tenancy with favourable rental rates (fixed income rose 4 pts to 61.0% in FY23), ii) reviewing and selecting tenants based on performances and iii) improving tenancy mix to increase footfall.

Ongoing marketing activities to boost footfalls.

Aeon will be celebrating its 40th anniversary this year and will kick off the ‘Senyum Tour’ from April 2024 until December 2024. The new promotions (40% off on selected items, RM40 flat price deals, Buy 1 Free 1, 400 freebies and Happy hour every 4 hours) are applicable to all Aeon malls and stores. Meanwhile, Aeon members day will be conducted as usual while roadshow for the anniversary celebration will be held on monthly basis, to engage with customers. In all, we believe that these ongoing initiatives could further boost Aeon’s footfalls and topline. Note that 4Q23 average basket size (ABS) improved by c.4.8 pts QoQ to c.RM61.6 (vs. RM61.9 in FY23).

Impact

We maintain our earnings forecast for FY24-26.

Valuation

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

Source: TA Research - 27 Feb 2024