KUALA LUMPUR (Oct 16): TA Securities has maintained its "buy" call on Aeon Co (M) Bhd, with a target price of RM1.57, on the back of expected subdued second-half results, store expansion and arrival of Singaporean tourists as new catalysts. 

In a note on Monday, following a recent engagement with AEON's management, the research house revised Aeon's FY2023 earnings forecast by 9.4%, reflective of lower contribution from the AEON Melaka (Ayer Keroh) and AEON Cheras Selatan malls due to rejuvenation.   

Nevertheless, the malls are expected to maintain a solid average occupancy rate of approximately 80% as the company has fully secured tenancy renewals for the next three years.  

“We also gather that the affected tenants were required to repay the maintenance and renovation fees amounting similar to its rental during the closure. Starting in June 2023, the renovations are expected to complete by the end of October 2023, allowing the malls to resume full operations in time for the lucrative Christmas and Chinese New Year sales.”  

TA Securities said while the impact to Aeon's earnings was not disclosed, it estimated the temporary closure for up to five months of the two malls to result in a marginal 2% decrease in both malls' retail segment revenue.  

AEON is strategically readjusting its specialty store expansion, particularly with a focus on cultivating premium markets.  

AEON currently operates 28 Aeon malls, 34 Aeon stores, eight Maxvalu stores, 62 Wellness outlets, and 43 Daiso stores.  

Its first Wellness store was established at the Midvalley Megamall in 2006, and has since expanded to a total of 62 outlets.   

AEON recently realigned its focus in Wellness, transitioning from a personal care store to a more lifestyle-oriented wellness chain, featuring an array of imported Japanese products.  

Elsewhere, the company also reported substantial growth in Daiso's foot traffic after the pandemic and is set to launch a new store in USJ on Oct 10, 2023.   

AEON is also in the process of identifying and securing new locations, with plans to establish an additional six to eight Daiso and Wellness stores in 2024.  

“In line with the company's expansion plans for its specialty stores, AEON would stand to benefit from an influx of Singaporean tourists,” it said, adding that 7.8 million Singaporean tourists will have visited Malaysia by the end of the year.  

Against the backdrop of a strengthening Singaporean dollar against the Malaysian ringgit, Singaporean tourists are expected to show robust interest in visiting AEON's Wellness and Daiso specialty stores  to purchase Japanese imported goods.  

“Hence, we anticipate the new specialty stores set to debut from 2024 onwards will be strategically located in the Johor region, aiming to capture the growing Singaporean footfall in alignment with their procurement strategy focused on Japanese-centric product offerings post-Budget 2024,” said the research firm.  

Notably, Budget 2024 is expected to benefit consumers due to an increase in income among the B40 demographic, boding well for AEON.  

Specifically, key measures of this budget include a cash aid increase to RM10 billion (up from RM8 billion) which would benefit over nine million recipients and one-time incentives of RM2,000 for civil servants below Grade 56 and RM1,000 for those above Grade 56.