aeon co. (m)
TRANSCRIPT
Results Note RM0.76 @ 25 November 2020
Share price performance
1M 3M 12M Absolute (%) 5.6 -12.6 -50.0 Rel KLCI (%) -1.2 -15.0 -50.2
BUY HOLD SELL
Consensus 4 2 2 Source: Bloomberg
Stock Data
Sector Consumer
Issued shares (m) 1,404.0
Mkt cap (RMm)/(US$m) 1,067/261.1
Avg daily vol - 6mth (m) 2.5
52-wk range (RM) 0.67-1.59
Est free float 23.3%
Stock Beta 1.03
Net cash/(debt) (RMm) (877.9)
ROE (CY21E) 5.2%
Derivatives Nil
Shariah Compliant Yes
Key Shareholders
AEON CO LTD 51.0%
EMPLOYEES PROVIDENT 14.9%
AMANAH SAHAM NASIONA 5.5% Source: Affin Hwang, Bloomberg
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Oct-17 Feb-18 Jun-18 Oct-18 Feb-19 Jun-19 Oct-19 Feb-20 Jun-20 Oct-20
(RM)
Chow Wei Nien
T (603) 2146 7579
Earnings & Valuation Summary FYE 31 Dec 2018 2019 2020E 2021E 2022E Revenue (RMm) 4353.6 4538.9 4044.2 4484.1 4684.7 EBITDA (RMm) 551.9 843.7 781.1 833.0 867.9 Pretax profit (RMm) 187.0 196.9 101.6 161.0 186.9 Net profit (RMm) 105.1 109.3 50.8 90.2 104.7 EPS (sen) 7.5 7.8 3.6 6.4 7.5 PER (x) 10.2 9.8 21.0 11.8 10.2 Core net profit (RMm) 113.4 109.5 50.8 90.2 104.7 Core EPS (sen) 8.1 7.8 3.6 6.4 7.5 Core EPS growth (%) 6.8 (3.4) (53.6) 77.4 16.1 Core PER (x) 9.4 9.7 21.0 11.8 10.2 Net DPS (sen) 4.0 4.0 1.8 3.2 3.7 Dividend Yield (%) 5.3 5.3 2.4 4.2 4.9 EV/EBITDA 3.6 4.8 4.9 4.3 3.8 Chg in EPS (%) - - - Affin/Consensus (x) 0.8 1.0 1.0 Source: Company, Affin Hwang estimates
Aeon Co. (M) (AEON MK)
BUY (maintain) Price Target: RM1.00 Up/Downside: +31.0% Previous Target (Rating): RM1.00 (Buy)
Better operational efficiency
Aeon registered a 3Q20 core net profit of RM16.4m (>100%) boosted by an
expansion in margins from improvement in the merchandise margin & mix as
well as overall cost control measures.
YTD, core earnings contracted by 76% yoy to RM14.3m owing to losses
suffered in 2Q20 due to lockdowns. Nonetheless, the result are in-line as 4Q
typically commands a sizeable portion of the group’s full-year earnings.
No changes to our earnings forecasts. Maintain BUY with an unchanged TP of
RM1.00, based on 15.5x 2021E EPS.
3Q20 core net profit spiked >100% yoy on margin expansion
In spite of a lower revenue of RM989.6m (-6.9% yoy) due to lower retail receipts and
rental income, Aeon’s 3Q20 core net profit soared >100% yoy to RM16.4m. This was
predominantly driven by margin expansion, on the back of: i) improvement in the
merchandise GP margin and mix, ii) changes in marketing mechanics, and iii) overall cost
control measures. On a YTD basis, core net profit contracted 76% to RM14.3m, largely
on losses in 2Q20 due to the severe impact of the Covid-19 disruptions. Overall, the net
profit was within our expectation as 4Q20 typically contributes to a sizeable proportion
(c.38%-47%) of the group’s full-year earnings in tandem with year-end festive spending.
Better cost controls could support margins
Revenue was up by 3.7% qoq amid better consumption spending and rental collection
during the RMCO period. Hence, earnings returned positive territory from losses suffered
in 2Q20, partly aided by margin expansion on the aforementioned factors. Looking ahead,
some softness is expected amidst the reinstatement of the CMCO which is leading to
softened footfall and consumption spending. That said, we expect aggressive cost control
measures to be sustained, providing support to margins, as the management looks to
embark on refining the business model to streamline the cost base, along with increased
investment on digitalisation opportunities.
Undemanding valuations; maintain BUY
As the 9M20 results are in line with our expectations, we made no changes to our
earnings forecasts. We keep our BUY rating on Aeon, with an unchanged TP of RM1.00
based on 15.5x 2021E EPS. Aeon’s 2021E PER looks undemanding at 11.8x, (2SD
below its 3-year mean PER), considering likely sequential earnings improvement from
the low base in 2020 in both its retail and property management divisions. Moreover, the
increasingly upbeat development on vaccines could see Aeon returning to some
normalcy in the latter part of 2021.
26 November 2020
“Better operational efficiency drove commendable earnings”
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Key Risks
Downside risks to our call include: i) a major wave of Covid-19 outbreak leading to a re-
imposition of the MCO, ii) sharp fall in retail traffic, and iii) further deterioration in macro
conditions and consumer sentiment.
Fig 1: Results Comparison
FYE Dec (RMm) 3Q19 2Q20 3Q20 QoQ YoY
9M19
9M20 YoY Comments
% chg % chg % chg
Revenue 1,062.4 954.3 989.6 3.7 (6.9) 3,368.8 3,134.8 (6.9) YTD decline in both retail (-6.2% due to MCO) and property management segments (-11.1% due to rental waivers & lower occupancy rate). 3Q20 lower yoy on cautious spending and rental waivers. QoQ
Op costs (883.0) (789.9) (792.1) 0.3 (10.3) (2779.4) (2585.6) (7.0)
EBITDA 179.4 164.4 197.5 20.1 10.1 589.4 549.2 (6.8)
EBITDA margin (%) 16.9 17.2 20.0 2.7ppt 3.1ppt 17.5 17.5 0ppt
Depn and amort (121.0) (123.1) (122.0) (0.9) 0.8 (360.7) (368.3) 2.1
EBIT 58.4 41.3 75.5 82.6 29.2 228.7 180.9 (20.9)
EBIT margin (%) 5.5 4.3 7.6 3.3ppt 2.1ppt 6.8 5.8 -1ppt Higher margin yoy in 3Q20 on improvement in merchandise mix & margins, marketing spend and cost controls.
Int expense (44.5) (37.8) (37.6) (0.6) (15.5) (120.0) (112.9) (5.9)
Int and other inc 0.3 0.1 0.2 7.0 (41.8) 1.0 0.5 (45.9)
Associates (0.3) (2.9) (2.3) (19.6) >100 (0.3) (6.6) >100
EI 0.0 0.0 0.0 n.m n.m 0.2 0.0 (95.2) Gain on PPE disposal
Pretax 14.0 0.8 35.7 >100 156.0 109.6 61.9 (43.5)
Tax (6.6) (10.4) (19.4) 86.6 191.9 (50.2) (47.7) (5.0)
Tax rate (%) 47.6 1,252.0 54.2 n.m 6.7ppt 45.8 77.0 31.2 ppt
Higher effective tax as certain expenses were non-deductible.
MI 0.0 0.0 0.0 n.m n.m 0.0 0.0 n.m
Net profit 7.3 (9.6) 16.4 n.m 123.3 59.4 14.3 (76.0)
EPS (sen) 0.5 (0.7) 1.2 n.m 123.3 4.2 1.0 (76.0)
Core net profit 7.3 (9.6) 16.4 n.m 123.3 59.2 14.3 (75.9) Within expectations
Source: Affin Hwang, Company
Fig 2: Segmental Breakdown
Segmental Revenue (RM m) 3Q19 2Q20 3Q20 QoQ YoY 9M19 9M20 YoY
% chg % chg % chg
Retail 888.6 810.7 836.2 3.1 -5.9 2,844.7 2,668.8 -6.2
Property Management 173.8 143.6 153.4 6.8 -11.8 524.1 466.0 -11.1
Total 1,062.4 954.3 989.6 3.7 -6.9 3,368.8 3,134.8 -6.9
Segmental Profit (RM m) 3Q19 2Q20 3Q20 QoQ YoY 9M19 9M20 YoY
% chg % chg % chg
Retail 2.1 2.7 31.3 1049.0 1356.9 55.5 54.2 -2.3
Property Management 69.2 54.0 71.9 33.0 3.9 207.5 181.6 -12.5
Total 71.4 56.7 103.1 81.8 44.5 263.0 235.8 -10.3
Segmental Profit Margin 3Q19 2Q20 3Q20 QoQ YoY 9M19 9M20 YoY Retail 0.2% 0.3% 3.7% 4.5ppt 3.7 ppt 2.0% 2.0% 0.1 ppt Property Management 39.8% 37.6% 46.9% 3.4ppt 3.5 ppt 39.6% 39.0% -0.6 ppt
Total 6.7% 5.9% 10.4% 9.2ppt 7.0 ppt 7.8% 7.5% -0.3 ppt Source: Affin Hwang, Company
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Important Disclosures and Disclaimer
Equity Rating Structure and Definitions
BUY Total return is expected to exceed +10% over a 12-month period
HOLD Total return is expected to be between -5% and +10% over a 12-month period
SELL Total return is expected to be below -5% over a 12-month period
NOT RATED Affin Hwang Investment Bank Berhad does not provide research coverage or rating for this company. Report is intended as information only and not as a
recommendation
The total expected return is defined as the percentage upside/downside to our target price plus the net dividend yield over the next 12 months.
OVERWEIGHT Industry, as defined by the analyst’s coverage universe, is expected to outperform the KLCI benchmark over the next 12 months
NEUTRAL Industry, as defined by the analyst’s coverage universe, is expected to perform inline with the KLCI benchmark over the next 12 months
UNDERWEIGHT Industry, as defined by the analyst’s coverage universe is expected to under-perform the KLCI benchmark over the next 12 months
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