MIDF downgrades AEON Co to 'neutral', cuts earnings forecasts for FY2023 to FY2025

• Despite profit rising to RM13.88 million and revenue at RM955.9 million for the third quarter ended Sept 30, 2023, MIDF Research said the results were below its expectations.

KUALA LUMPUR (Nov 27): MIDF Research has downgraded AEON Co (M) Bhd to "neutral", with a lower target price of RM1.14 (previously RM1.40), based on an unchanged price-earnings ratio of 13.9 times, pegged at a lower earnings per share of 8.2 sen forecast for the financial year ending Dec 31, 2024 (FY2024).

Despite profit rising to RM13.88 million and revenue at RM955.9 million for the third quarter ended Sept 30, 2023, MIDF Research said the results were below its expectations.

Following this, the research house cut its earnings forecasts for AEON Co by 6.9% for FY2023, 18.6% for FY2024, and 34.8% FY2025, on the back of lower revenue expectations, increased labour costs, and higher finance costs.

MIDF Research expects AEON Co’s retail segment to remain sluggish in FY2024, as consumers are likely to be cautious about spending on discretionary items, due to heightened inflationary pressure. 

However, the research house also expects out-of-home consumption of food line products within the retail segment to remain relatively robust, driven by resilient demand.

In addition, higher fixed rental income from the property management services segment is anticipated to provide partial support to earnings.

The department store and supermarket operator in a filing with Bursa Malaysia last Friday reported a decline in revenue of 2.7% year-on-year (y-o-y) to RM955.9 million, which the research house attributed to lower revenue from the retail business, which fell by 4.4% y-o-y. 

According to MIDF Research, the retail segment was affected by softening consumer discretionary spending, especially on soft-line, hard-line, and wellness products.

On a cumulative basis, AEON Co's core profit after tax and non-controlling interest (Patanci) of RM84.6 million for the cumulative first nine months ended Sept 30, 2023 was below both MIDF Research's full-year projection at 37.1% and the consensus at 68%. 

At the time of writing on Monday, shares in AEON Co traded two sen or 1.82% lower at RM1.08, giving the group a market capitalisation of RM1.52 billion.

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