Maybank said it came away from AEON's 3Q24 results briefing feeling positive believing the earnings should improve in the subsequent quarters on better consumer spending and stronger PMS contribution driven by its newly renovated malls. The house keeps its earnings estimates, BUY call and TP of MYR1.95.
Retail sales momentum is picking up speed
At AEON's 3Q24 results briefing, management shared that 9M24 retail EBIT margin increased to 2% (+0.3 ppts YoY) despite a flattish average basket size of MYR61.80 (9M23: MYR62.00), and a weaker product mix – where its lower margin foodline sales grew at the expense of softline and hardline categories. The house believes that the retail margin improvement had come from higher sales conversion rates from intensified marketing campaigns for AEON's 40th anniversary this year and expects this positive momentum to continue into 4Q24E.
PMS earnings have further room to grow
The group's 9M24 mall occupancy rate has risen to 95.1% (9M23: 91.8%) alongside positive rental reversions of between +7% to +9%. Maybank said it understands that the remaining mall rejuvenation exercises planned for FY24 – at AEON Bukit Indah, AEON Ipoh Station 18, and AEON Tebrau City – have been completed in early-Nov 2024, to avoid any shopping disruptions to
consumers during the Dec festive month. AEON will resume its mall rejuvenation activities in FY25 but has not shared any detailed plans at this juncture. Note that AEON typically experiences c.15% to 20% increase in sales in the year following major store or mall renovations.
Positive outlook intact
Aside from expectations for stronger festive spending in 4Q24E, the civil service salary increase (effective 1 Dec 2024) should also provide an added boost to AEON's retail and PMS sales in the next few quarters. The impact of minimum wage increase (effective 1 Feb 2025) on AEON's opex will be minimal as foreign workers make up <5% of its total workforce. Separately, management targets to achieve EBIT margins of c.2.5% for its retail segment in FY24 (9M24: 1.7%) and >38% for its PMS segment (9M24: 39.7%), consistent with modelled assumptions (retail: 2.3%, PMS: 40%).
