Maintain BUY with lower TP of MYR2.00
AEON’s 1Q22 results slightly missed our expectations due to higher-than-expected effective tax rate. We believe sales momentum in both retail and property management services segments will continue on an uptrend in 2Q22 driven by festive celebrations but could soften into 2H22 as cost inflation begins to curb consumer spending. Maintain BUY with lower TP of MYR2.00 (based on unchanged 25x FY22 PER, mean).
Higher-than-expected effective tax rate
1Q22 core net profit of MYR26m (-11% YoY, -66% QoQ) came in slightly below expectations at 22%/24% of our/consensus full-year earnings estimates. This largely resulted from higher-than-expected effective tax rate. 1Q22 revenue of MYR1b (-1% YoY, +1% QoQ) was however in-line at 26% of our full-year estimate.
Margins expanded YoY
AEON’s revenue fell 1% YoY led by: (i) an easing in retail segment contribution (-3% YoY) where relaxed movement restrictions weakened foodline sales but was partially buffered by higher softline sales, and (ii)
higher property management services revenue of +7% YoY on better sales commission and temporary space rentals post-pandemic. Meanwhile, 1Q22 EBIT grew 15% YoY on higher operating margins from both core segments (Retail: +1.4ppts YoY; Property management: +7.9ppts YoY) given the absence of lockdown restrictions on its retail segments (softline & hardline) and normalisation of footfall at shopping malls.
Revising earnings estimates
Our FY22/FY23/FY24 earnings estimates are lowered by 8%/5%/6% upon factoring in higher effective tax rates of 45%/40%/40% (from 35% p.a.) as a result of Cukai Makmur in FY22 and a normalised rate of 40% in FY23- FY24 on higher non-deductible expenses based on management guidance. We have also raised retail margins of 5% p.a. (from 3% p.a.). Sales momentum in sequential quarters are expected to be positively driven by higher sales during Hari Raya Adilfitri but could soften into 3Q22 as we believe consumer spending may turn more cautious amidst inflationary uncertainties.