AEON: Brighter Outlook Fuels Earnings Upgrades Amid Strategic Retail Shifts

Despite facing headwinds from extensive renovations and softer consumer spending in the past year, a leading investment bank maintains a positive stance on a prominent retail group, anticipating a significant rebound in earnings driven by strategic initiatives and an improving consumer sentiment. The bank has upgraded its earnings forecasts for the coming years and reiterates a ‘BUY’ recommendation.

Performance Review

The retail group’s core net profit for the fourth quarter of fiscal year 2025 is projected to be in the range of MYR45-50 million, marking a year-on-year decline of 13% to 22%. This dip largely reflects timing differences in Lunar New Year sales compared to the previous year. For the full fiscal year 2025, core earnings are estimated at MYR140-145 million, representing a 10-13% YoY decrease. This performance was primarily impacted by subdued discretionary spending and a significant large-scale refurbishment program undertaken throughout the year, which incurred higher initial start-up costs and temporary loss of sales due to store closures.

Future Outlook and Strategic Growth

Looking ahead, retail earnings are expected to strengthen in fiscal year 2026, underpinned by an anticipated improvement in consumer sentiment. The extensive renovation and expansion projects initiated in FY25, including a substantial capital expenditure of approximately MYR190 million in 9M25, are now expected to normalise. Management anticipates these upgraded stores will lead to better sales capture and contributions, while the scale and number of major renovations in the FY26 pipeline are set to return to normal levels.

The Property Management Segment (PMS) is also poised for continued robustness, maintaining high occupancy rates exceeding 95% and expecting healthy single-digit rental reversion. A reduction in the Sales and Service Tax (SST) to 6% is anticipated to further bolster rental negotiations and ongoing tenant re-zoning efforts, ensuring sustained rental income growth.

Key expansion initiatives for FY26 include the opening of the KL Midtown mall in 4Q26, which is strategically positioned for premium offerings expected to enhance rental yields. The AEON Style format, successfully launched in December 2025, has already shown encouraging early responses, with two additional stores planned for FY26.

Investment Bank’s View

The investment bank has revised its earnings forecasts for fiscal years 2026-2028 upwards by approximately 3-4%, following minor housekeeping adjustments and updated operating expense assumptions. This positive revision reinforces the bank’s BUY recommendation, citing an attractive entry point given current valuation levels and the potential to capitalise on improving consumer sentiment and discretionary spending. The bank has also raised its target price, reflecting the brighter outlook and upgraded earnings potential.