Aeon upgraded to ‘buy’ on stronger earnings expansion

KUALA LUMPUR: Affin Hwang Capital research has upgraded Aeon Co (M) Bhd to a “buy” call with a higher target price of RM1.79 as it forecasts stronger earnings expansion in 2020-21.

“We trim the 2019E earnings to reflect a slightly softer 2H19 performance, but raise that for 2020-21E on account of a progressive margin recovery,” it said.

The ongoing recovery in Aeon’s same-store sales is likely to propel the segment’s earnings contribution under an elevated fixed cost base.

“Recall that Aeon’s retailing segment used to account for half of the group EBIT before margins were eroded by negative SSSG during the GST regime,” said the research house.

Further, Aeon’s annual capex will be scaled back to Rm300-400mil after 2019, and used mainly for maintenance, refurbishment sand the opening of smaller-format stores.

There will be no new mall opening over the next two years.

“We expect margins for the property management segment to stabilise as its expanded floorspace gestates, allaying the pressure on rental reversions due to excess supply in retail rental spaces,” it said.

For 3Q19, the research house expects sluggish retailing sales growth off a high base from the zero-rated GST period last year in addition to the recent haze outbreak, which affected businesses in September.

Some margin pressure is also expected in 4Q due to start-up costs from the re-opening of AEON Taman Maluri, despite the year-end festivities.