KEY INVESTMENT HIGHLIGHTS

• Within expectations
• Stable growth with strong PMS contribution
• Resilient YTD performance
• Balancing profitability amid headwinds
• Maintain BUY with an unchanged TP of RM1.67

Within expectations. Aeon Co. ("Aeon") chalked in 3QFY24 revenue of RM1b (-1.8%qoq; +4.9%yoy) and core PATANCI of RM19.2m (- 27.6%qoq, +28.9%yoy) which brought 9MFY24 core PATANCI to RM104.0m (+23%yoy). This met our full-year FY24 forecast and was slightly below consensus at 75% and 69% of full-year expectations respectively.

Stable growth with strong PMS contribution. AEON's robust PAT growth was driven by effective cost management and an improved product mix in its retail segment. While revenue grew +4.9%yoy to RM1.0b in 3QFY24, core PAT surged by +28.9%yoy due to lower net finance costs and stable operating expenses. The property management services (PMS) segment contributed strongly, with enhanced profitability stemming from improved occupancy rates and strategic rental renewals.

However, it is worth noting that the higher base in 3QFY23-due to a one-off RM15.1m lease de-recognition resulted in a -10.4%yoy decline in 3QFY24 profit before tax (PBT) to RM25.9m. Excluding this non-recurring item, PBT grew by RM12.1m, demonstrating AEON's operational resilience.

Resilient YTD performance. AEON's 9MFY24 core PAT of RM104.0m marked a +23%yoy growth. This growth was primarily attributed to higher gross margins and effective cost management across its operations. The company's ability to maintain profitability despite external challenges such as subdued consumer sentiment and inflationary pressures highlights its robust management strategies. The retail segment continued to deliver steady contributions, while PMS benefitted from sustained tenant demand and enhanced rental yields.

Balancing profitability amid headwinds. Although the retail segment recorded a slight revenue contraction of -1.8%qoq to RM822.1m, the focus on cost optimization helped cushion the impact on earnings.

Similarly, PMS revenue fell -1.7%qoq to RM180.9m due to the absence of festive-driven spending. However, AEON's cost optimization efforts and efficient rental management effectively mitigated these temporary pressures, supporting a steady bottom line.

Maintain BUY with an unchanged TP of RM1.67. Given that 9MFY24 is within our estimates, we make no changes to our earnings forecast for FY24-26F. Our TP is based on PER of 15.5x pegging to FY25F EPS of 10.8sen.

Outlook. We remain optimistic on Aeon Co's outlook underpinned by: (1) solid out-of-home spending thanks to the stable job market and income prospects, (2) various government cash handouts, and EPF Account 3 withdrawal that could support the spending for value staple products at Aeon Co, (3) stable occupancy rate and positive rental renewal for the PMS segment thanks to the return of consumers to shop physically and (4) strategic retail initiatives, including the expansion of private- label offerings, digital transformation efforts, and the development of AEON Living Zones, which enhance customer engagement and loyalty.

Source: MIDF Research - 22 Nov 2024