RAM Ratings reaffirms AEON (M)’s AA2/P1 issue ratings

Published on 09 Sep 2022.

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RAM Ratings has reaffirmed the respective AA2/Stable and P1 ratings of AEON Co (M) Bhd’s (AEON (M) or the Company) RM1 bil Islamic Commercial Papers/Islamic Medium-Term Notes Programme (2016/2031). This is premised on our expectation that the Company will be able to maintain credit metrics which are commensurate with its current ratings, supported by an easing debt load.  

AEON (M)’s ratings remain supported by its strong market position as Malaysia’s largest mall owner and an established retail-chain operator. The Company is deemed strategically important to its Japan-based parent, AEON Co. Ltd, as the latter’s largest revenue contributor in Southeast Asia. As such, we expect a high likelihood of parental support to be readily extended if needed.

In FY Dec 2021, AEON (M)’s revenue and operating profit before depreciation, interest and tax (OPBDIT) underperformed our projections, falling a respective 10.4% and 5.4% y-o-y owing to operational disruptions during the pandemic. Continual cost reduction efforts nonetheless cushioned the impact. On the back of a more profitable product assortment and improved product sourcing strategies, AEON (M)’s OPBDIT margin expanded to 19.4% (FY Dec 2020: 18.4%).  As business operations continue to normalise, revenue and OPBDIT in 1H fiscal 2022 grew by a respective 11.1% and 14.8% y-o-y, supported by improved performance from both the retail and property management segments. We expect the reopening of the economy and international borders to help business recovery moving forward, although persistent inflationary pressure will test margins. 

While operating profit was muted, capital expenditure (capex) stayed minimal following the Company’s discontinuation of new mall investments. This allowed AEON (M) to rapidly offload debt in the past two years. Consequently, its adjusted debt to OPBDIT and funds from operations debt coverage ratios were a better 3.11 times and 0.30 times, respectively, in FY Dec 2021 (FY Dec 2020: 3.36 times and 0.28 times), improving further to 2.27 times and 0.39 times in 1H FY Dec 2022.  In the next few years, AEON (M) will continue to curtail investments in new malls and instead redirect capex towards rejuvenating existing malls and stores and strengthening its online presence. Strong cashflow generation will give the Company room to continue paring down borrowings. We project the abovesaid ratios to hover around 3.11 times and 0.32 times, respectively, over the next two years under our sensitised assumptions.

Notwithstanding recent improvements in its debt metrics, AEON (M)’s gearing is still deemed moderately high, attributable to hefty lease commitments for its malls and stores. Also moderating the ratings are keen competition in the retail industry and rapidly changing consumer preferences, which will affect its retail business. The abundant supply of retail space, given soft demand during the pandemic, is expected to challenge the Company’s mall operations.


Analytical contacts
Hani Hamizah Nor Hashim
(603) 3385 2575

Thong Mun Wai
(603) 3385 2522


The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.

RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.

Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.

Published by RAM Rating Services Berhad
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