• Still BUY and MYR1.75 TP, 20% upside and c.4% FY25F yield. AEON Co M's 9M24 results were in line with expectations, with a stronger 4Q24 anticipated. Property management segment (PMS) should continue to be the key growth driver, supported by above-industry rental reversions following mall refurbishments, tenant mix optimisation, and ongoing mall expansions. Current valuation is attractive, with AEON well-positioned to capitalise on positive sector developments and on track to achieve a record year.

• Within expectations. 9M24 core profit of MYR104m (+26.5% YoY) came in at 66-69% of ours and Street’s full-year estimates. The results are deemed within expectations, as 4Q24F should see seasonally stronger results.

• Results review. YoY, 9M24 sales rose 3.1% to MYR3.2bn thanks to better results from both the retailing (+4.1% YoY) and property management (+9% YoY) segments. PMS benefitted from an improvement in occupancy rates and effective rental renewals, while the retailing business saw higher spending likely boosted by the restructuring of Employees Provident Fund (EPF) accounts to facilitate flexible withdrawal. 9M24 EBIT margin expanded by 0.4ppts to 7.3%, likely due to higher sales which led to operating leverage. QoQ, 3Q24 revenue fell 1.8% due to unfavourable seasonality with the absence of major festivals and lengthy holidays. 3Q24 EBIT margin shrank 1.7ppts QoQ, dragged by the retailing segment, which incurred an EBIT loss of MYR8.2m. Correspondingly, core profit dipped 32.1% QoQ to MYR18.8m.

• Outlook. Sales are expected to pick up in the seasonally stronger 4Q, driven by the year-end festive season, school holidays, and the earlier Lunar New Year (2024: 10 Feb vs 2025: 29 Jan). Looking ahead, AEON is well-positioned to benefit from resilient consumer spending and boost from civil servants’ salary hike. Meanwhile, AEON’s efforts to optimise its tenant mix, attract popular brands, and refurbish its malls should continue to boost foot traffic, which in turn will increase tenant sales and enhance PMS performance. The company is also poised to accelerate mall expansion after a more cautious approach in recent years, supported by a deleveraged balance sheet and lower borrowing costs from falling interest rate environment.

• Forecast and ratings. We make no changes to our earnings forecasts and DCF-derived MYR1.75 TP (inclusive of a 6% ESG premium). Our TP implies 14.5x FY25F P/E (close to its 5-year mean) – in line with the valuation ascribed to other consumer retail stocks under our coverage.

• Key downside risks: Weaker-than-expected consumer sentiment and higher-than-expected opex.

Source: RHB Securities Research - 22 Nov 2024