We remain optimistic about Aeon’s 4QFY24 performance, based on insights shared during the 3QFY24 investors' briefing. We anticipate a strong quarter, supported by stronger sales during the festive season and increased foot traffic, which are expected to drive growth in the property management segment. We reiterate our Buy recommendation with a TP of RM1.68/share, derived from a DDM valuation (k: 7.1%; g: 3.0%).

Key takeaways from the briefing include:

1. Property Management Segment (PMS) Remains the Key Contributor
2. Retail Segment Benefits from Robust Year-End Festive Sales
3. Continue to be ESG Friendly

Property Management Segment (PMS) Remains the Key Contributor

To recap, the Property Management Segment (PMS) demonstrated resilience in 9MFY24, achieving YoY revenue growth of 10.3% and EBIT growth of 7.3%. These commendable results were driven by i) a 7.0% YoY increase in tenant sales, ii) a rental renewal rate of 65%, and iii) an improved occupancy rate of 95.1%, up from 91.8% in 9MFY23.

However, the 9MFY24 EBIT margin slipped slightly by 0.9%-pts YoY to 39.7%, primarily attributed to a one-off gain from the lease de-recognition of the Kota Bharu land recorded in the prior year. Despite this, the margin remains in line with management’s guidance of achieving at least 38% for FY24.

Looking ahead, PMS's topline is poised to grow further in FY24, supported by robust foot traffic during festive seasons. In 4QFY24, all Aeon malls/stores are fully operational, with only minor facelifts underway to enhance the shopping experience and attract more shoppers. Consequently, we expect the occupancy rate to improve by 2%-pts to 95%, alongside a target renewal rate of 90% for FY24. Additionally, we also foresee a stable rental revision rate of +9% for FY24, consistent with the previous year. Overall, we expect the EBIT margin to surpass 38% in FY24, compared to 37.9% in FY23.

Retail Segment Benefits from Robust Year-End Festive Sales

As expected, 3QFY24 segmental revenue remained subdued at RM180.9mn, primarily due to the absence of festive seasons. Hence, the average basket size (ABS) in 3QFY24 slid by 6.3% QoQ to RM55.2/transaction (9MFY24: RM61.2/transaction). Reflecting this muted third quarter, 9MFY24 reported flattish revenue of RM2.6bn, comparable to the prior year. Management highlighted that the central region continues to be the key contributor, accounting for 63.1% of the retail segment's revenue. Meanwhile, the Southern region continued to show growth in 9MFY24, driven by increased spending from Singaporean shoppers. Notably, the ABS at Southern region outlets is 20% higher than that of other regions.

Heading into 4QFY24, we expect the ABS to rise by 23.9% QoQ to RM68.4/receipt, with revenue anticipated to rebound in 4QFY24 due to heightened festive season sales. In conjunction with Aeon’s 40th anniversary celebrations, more exciting promotional and marketing activities are ongoing to stimulate consumer spending (Appendix 1). Overall, we are targeting an ABS of RM63.0/receipt for FY24 (compared to RM61.9/receipt in FY23). We also maintain our segmental EBIT margin projection of 2.5% for FY24 (9MFY24: 1.7%), driven by improved operational efficiency.

Continue to Be ESG Friendly

In 3QFY24, Aeon reaffirmed its commitment to sustainability through various initiatives. Notably, the group strengthened its pledge to eliminate single-use plastic bags for customers, effective 1 October 2024. Furthermore, 4 more Aeon malls have started offering electric vehicle (EV) charging services, bringing the total to 11 malls with this facility. In recognition of its ESG efforts, Aeon was honoured with a Gold Award for sustainability practices by the Malaysia Shopping Malls Association for the 2023 to 2024 period.

Impact

No change to our earnings forecasts.

Valuation

We reiterate our Buy recommendation with an unchanged TP of RM1.68/share, based on DDM valuation (k:7.1%; g:3.0%).

Source: TA Research - 25 Nov 2024