AEON valuation lowered on anticipated headwinds


AEON Co (M) Bhd is likely to be impacted negatively by its retailing and property management segments this year partly due to the Movement Control Order (MCO).

In a recent report, MIDF Amanah Investment Bank Bhd noted that headwinds may persist into the first quarter of 2021 (1Q21) due to the longer than expected MCO which is expected to last through to March.

“We expect year-on-year (YoY) decline in sales due to the MCO, which was reintroduced on Jan 13, 2021, which coincided with the Chinese New Year celebration, a seasonally strong period for the business, thus causing loss of sales from the general merchandise segment during the festive season,” MIDF stated.

It expects AEON to give rental rebates to its tenants who were forced to shut during the MCO period, thus missing out on the turnover rent from the seasonally stronger period and income from temporary rental due to the lack of events and exhibitions.

AEON posted a net profit of RM41.4 million for FY20 as its revenue fell 10.7% YoY to RM4.05 billion attributed to weaker consumer sentiment in uncertain times.

The closure of the department store for nearly two months had hit its retailing segment and non-essential goods and services tenants. This resulted in retail profit decreasing by 32% to RM77.9 million and property management services profit down 14.6% to RM229.6 million.

MIDF, however, noted that AEON’s full-year earnings for 2020 exceeded its expectations, whereby its profit was above the research house estimate.

AEON recorded a net profit of RM41.4 million which was above MIDF’s estimate of RM34.2 million but below consensus’ estimates at 76.3%.

MIDF added that AEON managed to improve its operating margin for the property management segment.

“We believe the cost optimisation structure is likely to further benefit the company when the retail industry turns around. On top of the val- ue-added services such as ‘Click and collect’, drive-through, personal shopper and delivery, it will feature more merchandise of its tenants.”

“In line with that, we have downgraded AEON to ‘Neutral’, with an unchanged target price (TP) of RM1.18. We continue to like AEON for its ability to remain agile and lean under a tough operating environment. That said, the run-up in its share price leaves limited upside,” MIDF stated in a recent report.

Hong Leong Investment Bank Bhd (HLIB) maintained its ‘Buy’ call on AEON on expectations of a recovery in retail activity due to the Covid-19 vaccines rollout in the country.

HLIB said despite AEON’s shortfall in results, its forecast remains unchanged as the MCO is relaxed, fall in infections and vaccine rollout will keep retail recovery intact.

It noted that AEON’s 4Q profit was below expectations while its revenue also declined.

“For FY20, despite the lower top line, its core profit surged to RM27.2 million predominantly on the back of improvement in merchandise gross margin, changes in marketing mechanics and stringent cost control measures that helped boost its Ebitda margin by +2.5 percentage points,” it said.

HLIB increased its TP on AEON from RM1.17 to RM1.32.