Aeon to benefit from better economy in 2022

by ASILA JALIL / pic by BLOOMBERG

AEON Co (M) Bhd is poised to have a better outlook in financial year 2022 (FY22) following the reopening of the economy after the Covid-19 pandemic.

Hong Leong Investment Bank Bhd (HLIB) applauds the group’s continuous effort in recalibrating its cost structure which has led to an increase in its earnings margin expansion for retailing by 7.3 percentage points (ppt) year-on-year (YoY) and 11.1 ppt YoY for its property management services.

“Aeon is accelerating its digital shift specially to grow adaptation of myaeon2go among its consumers, create Aeon Living Zone to integrate both online and offline shopping engagement experiences, advance health and wellness, as well as to deepen its customer engagement and experience via its Aeon loyalty programme and iAeon app,” the investment bank stated in a report on Aeon last week.

HLIB increased Aeon’s FY22/23 forecast earnings by 7% and 16% respectively to account for better margin.

It upgraded its recommendation to a ‘Buy’ call with a higher target price (TP) of RM1.78 from RM1.25 previously after rolling over its valuation year from FY22 to FY23 based on unchanged 19 times price-to-earnings multiple.

“We are confident in the group’s agile approach in adapting through changes in marketing mechanics and sustainable cost reduction structures which would provide support to margins moving forward,” HLIB added.

Aeon recorded a profit after tax of RM71 million for its fourth quarter ended Dec 31, 2021 (4Q21) which brought FY21’s net earnings to RM85.3 million.

The earnings were attributable to improvement in sales during the quarter coupled with Ebitda margin expansion from the group’s ongoing cost strategy.

Aeon declared a final dividend of three sen per share compared to 1.5 sen per share in 4Q20.

Year-to-date, HLIB noted prolonged closure of stores due to Phase 1 of movement restrictions and weaker demand during the current year’s festivity resulted in retail sales declining by 10%.

Property management services revenue was lower by 12% due to lower rental income as part of the group strategy to revamp the rent structure to include variable rent structure.

“Retail business chalked in decline of 10% attributable to the prolonged closure of stores totalling 119 days in FY21. Despite the moderated sales, core profit after tax leaped more than 100% to RM85.3 million thanks to the group’s proactive effort in improving its cost structure,” it added.

MIDF Amanah Investment Bank Bhd (MIDF Research) also expects a better outlook for Aeon due to its improvised strategies and recovery in the domestic economy.

“We expect Aeon’s prospects to improve from FY22 onwards in-line with the nation’s vaccination programme and reopening of businesses and social activities.

“We are mindful about the downside risks and uncertainties about Covid-19, which could result in lower footfall in shopping malls,” it said in a note.

MIDF Research raised its FY22 estimated earnings for Aeon by 8% in view of improved consumer sentiment and the group’s position to benefit from the economic recovery.

It opined the group has an advantage as a retailer and asset owner at the same time while being backed by Aeon Co Ltd.

MIDF Research upgraded Aeon to ‘Buy’ with a revised TP of RM1.49 from RM1.38 previously due to the group’s effective business strategies and cost restructuring structure.

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