AEON faces less severe MCO impact this time


AEON Co (M) Bhd is expected to experience a less severe impact from the current Movement Control Order (MCO) compared to last year, although a stronger rebound is contingent on the containment of the Covid-19 pandemic.

“Compared to the predecessor MCO, we opine the aftermath will be less severe as the group is more equipped, having braced through the experience last year.

“Despite that, we think it may not fully recover to the pre-pandemic level and forecast that stronger recovery will only be seen with successful containment of Covid-19,” Hong Leong Investment Bank Bhd (HLIB Research) analyst Syifaa’ Mahsuri Ismail wrote in a research report last Friday.

HLIB Research has maintained its ‘Hold’ call on AEON with an unchanged target price of RM1.16, based on unchanged 19 times the financial year 2022 earnings, given the lack of positive re-rating catalyst in the near term.

Syifaa’ said despite the various strategies put in place, the group’s earnings would be subdued following the longer-than-expected store closures with elevated Covid-19 cases.

She said the Enhanced MCO (EMCO) areas, including Selangor, Kuala Lumpur and Seremban, contributed about 40% of the total revenue.

The analyst said despite the decline in footfall, AEON saw an incremental increase of 20% in the basket size compared to pre-pandemic times, thanks to an effective product placement strategy coupled with consumer preference to reduce the frequency of visits.

She said retail sales were severely affected by lower footfall traffic during Phase 1 of the Full MCO and EMCO.

She noted that only AEON Supermarket and Wellness pharmacy are allowed to operate while others remain shut for the period, including non-essential tenants, department stores and Daiso.

For the property management segment, she said rental rebates are likely to be smaller than what was provided in April 2020.

“AEON is working closely with tenants on a case-by-case basis. We understand that rental rebates likely will not be as huge as what was provided in April 2020, as AEON has been assisting in bringing more tenants to its online platform.

“To recap, AEON offered a 28-day rental waiver in the period of MCO1.0 to help ease tenants’ financial burden,” she noted.

Syifaa’ said AEON would officially launch myAeon2go-Boxed partnership by the end of August 2021 to spearhead growth in its online contribution.

The platform is expected to support AEON’s 4,000 tenants in its malls throughout the country. The superstore chain operator targets its online channels to contribute 15% to 25% of its top line in five years.

At this juncture, Syifaa’ noted that online sales had seen positive traction with a 10 times climb in sales as compared to the fourth quarter of last year. Despite this, the online contribution still stands at less than 1%,” it said.

Meanwhile, AEON has set up a vaccination programme and has committed to 50,000 vaccinations as an incentive to help the country reach herd immunity.

The pilot project started in AEON Maluri to act as a mobile vaccination centre.

For this programme, the government will bear vaccine costs while AEON will pay the logistical and administrative costs.

AEON shares closed 0.76% higher to RM1.33 last Friday, valuing the company RM1.87 billion.