KUALA LUMPUR (Jan 22): Hong Leong Investment Bank (HLIB) Research has lowered its target price (TP) for AEON Co (M) Bhd to RM1.17, from RM1.25 previously, on the back of softer retail sales expected for the near term given lower footfall in light of the second movement control order (MCO 2.0).

HLIB’s Syifaa’ Mahsuri Ismail maintained her "buy" rating of the stock at RM1, based on unchanged 19 times earnings per share (EPS) forecast for the financial year ending Dec 31, 2022 (FY22).

The analyst opined that the impact of MCO 2.0 will be less severe, and AEON will be able to brace through another storm with its clear strategy to chart for a recovery, having braced through the worst in March to May 2020.

“We lower our FY20/21 earnings forecasts by 12%/7% as we lower our footfall traffic assumptions to reflect 4Q20’s (the fourth quarter of 2020) domestic Covid-19 resurgence and the recent MCO 2.0,” she said in a note today.

Syifaa' said, “To recap 2Q20, AEON lapsed into losses of RM9.6 million for the first time given a 20% drop in its top line.”

Moving forward into FY21, Syifaa' expects AEON’s retail spending to be positive year-on-year (y-o-y) due to a low-base effect from 2020.

She added: “We remain confident in the group’s longer-term outlook with its strategic plans in refurbishing existing malls to attract better foot traffic, expanding its presence on online platforms and introduction of specialist concept stores to drive better margins.”

She noted that AEON had expanded its online platforms last year through myaeon.com.my, fresh.myaeon.com.my and myaeon-sg.com (to cater for customers in Singapore who are unable to cross borders for their grocery needs).

“Though user bases for its online platforms are still very low at this juncture, AEON targets for its online channels to contribute 15% to 25% of its top line in five years’ time,” said Syifaa'.

Syifaa' also noted that AEON is in the midst of setting up its pilot project in specialist concept stores to drive better margins.

She added, “In the pipeline currently are Home Coordy, which focuses on household furniture, Kids Republic for speciality in kids’ necessities and Komaiso, a flat-price concept store scheduled to be rolled out in 2Q21.”

In term of AEON’s capital expenditure (capex), the retail company has a capex plan for FY21 of RM220 million, whereby 50% is allocated for revamping existing malls (improving amenities), followed by 30% for upgrading the technology to expand the digitalisation effort for its online platforms.

“Additionally, management has budgeted a bigger capex of RM500 million for FY22, with a plan to roll out new malls in three to five years’ time,” said Syifaa'.

At 11.42am today, AEON had dipped 1% or one sen to 99 sen, valuing it at RM1.39 billion.