AEON heads towards further hike in share price

Aeon Co (M) Bhd has fared fairly well in terms of share price, rising some 31% in the past year to close at RM1.45 on Nov 20.

Aeon posted an 8% decline in net profit to RM27.9 million in 2QFY24 from RM30.2 million a year earlier while revenue was flattish at RM1.02 billion. This brings 1HFY24's net earnings to RM85.2 million, which was a 25% YoY increase while revenue was at RM2.19 billion..

Consensus estimates forecast the group will register rising net earnings of RM151.7 million for FY Dec 2024 and RM163.4 million for FY Dec 2025. In terms of valuation, the stock is currently trading at prospective PERs of 13.5x for FY24 and 12.5x for FY25.

Moving forward, investors are excited on prospects of retailers such as Aeon as it stands to gain from renewed sentiment following the announcement of Budget 2025. The Budget was aimed at supporting consumer demand, with demand for discretionary goods expected to rise as consumers feel less financially constrained.

Budget 2025 included a 30% increase in cash handouts through the Sumbangan Tunai Rahmah programme, raising the allocation to RM13 billion. The cash handouts are aimed to augment household income, effectively mitigate inflationary pressures, and encourage sustained spending on essential goods.

Additionally, the minimum wage rise starting February 2025 will further boost the purchasing power of low-income households. The rise in civil servant salaries, which comes into effect in December 2024, is expected to amplify these positive effects, particularly during the festive season.

The delay in the rationalisation of RON95 subsidies until mid-2025 has eased concerns about potential fuel price hikes. This ensures price stability for 85% of Malaysians, bolstering consumer confidence, and encouraging spending on non-essential items. Investors should like Aeon for its recovery play, riding on the expected rise in discretionary spending in mid term.