AEON Co's FY22 focus on rejuvenation of malls and recovery, MIDF says as it raises TP to RM1.74

KUALA LUMPUR (April 15): MIDF Research said on Friday (April 15) that it expects AEON Co (M) Bhd’s prospects to improve from the financial year ending Dec 31, 2022 (FY22) onwards in line with the reopening of businesses and social activities.

The research house said in a note that it came back from AEON Co’s virtual meeting with a sense of optimism about the group’s outlook premised on its cost-structuring strategies to improve its bottom line and maintain prices of items, personalisation of customer experience, a recovery in sales in the southern region which was affected due to border closures, and an improvement in occupancy rates.

Cognisant of the challenging business environment, MIDF said the group's new strategy of restructuring tenancy income for FY22 — where fixed rental will be reduced while commission-based fees will be higher — bodes well for the group.

“We opine this will be positive on the group, where the expected increase in footfall in the malls, coupled with the reopening of international borders, will contribute meaningfully to the group’s property management revenue segment through better commission fees from tenants,” it said.

Meanwhile, by targeting same-day delivery within three hours, it said revenue from myAEON2go for FY21 increased manifold to RM24 million.

“While this was insignificant compared to the total revenue of RM3.6 billion, the group is projecting growth of this segment to be around two times in FY22 as it pivots to an online-merge-offline business model in line with changing consumer shopping trends and uncertainty in footfall,” it said.

Starting with the AEON Mall Alpha Angle in Wangsa Maju in FY21, it said the group expects to rejuvenate around three to five malls on an annual basis, adopting the i.d.e.a. (inclusive, digital, experiential AEON) concept with integration of online and offline tenants until FY25.

“This plan is in line with the group's mission to improve its mall and tenant mix, which would potentially result in an occupancy rate of more than 92% by end-FY23. As such, currently there are no plans for new mall openings and the group will focus on the rejuvenation of its existing malls,” it said.

Despite the optimism, the research house is mindful of the downside risks and uncertainties over Covid-19, which could result in lower footfall in shopping malls.

It maintained its "buy" call on the stock due to the group’s effective business strategies and cost-restructuring structure.

“Our target price of RM1.74 (previously RM1.49) is based on a revised price-earnings ratio valuation of 19.8 times, which is its five-year historical mean. It is pegged at AEON Co’s FY22 forecast earnings per share of 8.8 sen,” it said.

At the time of writing on Friday, AEON Co had fallen one sen or 0.62% to RM1.60, valuing the group at RM2.26 billion. Year to date, the counter has risen 14.29%.

Edited by Surin Murugiah

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