KUALA LUMPUR: RHB Research has upgraded Aeon Co. (M) Bhd (Aeon Malaysia) to "buy" from "neutral" with a higher target price of RM1.75 from RM1.35 following a stronger results in the first half of financial year 2024 (1HFY24).
The firm said Aeon Malaysia's core profit of RM85.2 million during the period accounted for 62 per cent and 60 per cent of its own and consensus full-year forecasts due to better-than-expected sales and margins from both retailing and property management segment (PMS).
Concurrently, it raised Aeon Malaysia's earnings forecast for FY24-26 by 14 per cent, 16 per cent and 17 per cent after revising the conservative rental reversion and margin forecast for PMS.
"Current below mean valuation is attractive, with Aeon's retail segment well-positioned to capitalise on positive sector developments.
"PMS is expected to remain resilient, supported by strong rental reversion, while the hybrid rental model is poised to benefit from improved tenant sales amid better consumer sentiment," it said today.
RHB Research expects the company to benefit from recent developments, such as civil servant salary hike and flexible Employees Provident Fund (EPF) withdrawals.
These should support near-term retail sales despite the lack of festive events, aligning well with its customer base.
The firm added that Aeon Malaysia is streamlining staff costs and improving digitalisation to enhance margins, while strengthening marketing and promotional strategies to stimulate consumer spending.
"Meanwhile, PMS is experiencing strong rental reversion due to ongoing rejuvenation and mall upgrades, attracting more tenant interest through improved competitiveness.
"Additionally, Aeon's hybrid rental model positions it to capture improved tenant sales amid better consumer sentiment," said RHB Research.
Looking ahead, the firm said Aeon Malaysia plans to open a new mall at KL MidTown in FY25/26.
This will expand its net leasable area by 3.0 per cent to 400,000 square foot with a focus on mid to high-end customers and a slightly upscale concept.